Two interpretations of China’s role in the transformation of global energy markets contend for pride of place in the ongoing debate about “China’s rise.” One is relatively upbeat. China’s economy, it runs, has enjoyed spectacular growth over the past two decades. With output expanding at close to double-digit rates per year, today China accounts for more than 15 percent of world GDP valued in purchasing power parity terms—roughly comparable with the share of the euro area. As a result, China has become one the world’s most powerful growth engines: in 2005, almost 30 percent of global growth was attributable to China’s rapid economic expansion, whereas only about 5 percent came from the euro area. To keep this performance going, the Chinese leadership has to bring business practice into line with prevailing global policy norms through a continuing flow of effective market-opening measures. Given past performance, there is every reason to take seriously the new leadership’s proclaimed objective to quadruple national income by 2020.
The other interpretation views China’s development in negative terms. China, this view states, is a global polluter. Its economy has remained substantially less energy-efficient than the Organization for Economic Cooperation and Development (OECD) countries, as might be expected, given its stage of development. But China is not a normal developing country. It cannot slow the economy, even if the leadership says it intends to do so. All the incentives for local officials are to go for growth, line their pockets while the going is good, and let the devil take the hindmost. The burden is carried by the Chinese workforce and by the rest of the world in terms of unsustainable current account imbalances, deflationary pressures on wages, and excess liquidity in the G-7 markets. China’s oil thirst has been added to the list, as fuel prices rise, dampening purchasing power in the rest of the world.
Peter Cornelius (email@example.com) is responsible for economic and strategic research at AlpInvest and a visiting professor at the Vlerick Leuven Gent Management School. He also teaches at the European School for Management and Technology. Jonathan Story (firstname.lastname@example.org) is professor of international political economy and Shell Fellow of Economic Transformation at INSEAD and a visiting professor at the European School for Management and Technology. His latest book is China: The Race to Market (Pearson’s, 2003). A shorter, earlier version of this article appeared in “China Revolutionizes Energy Markets,” Far Eastern Economic Review, October 2005.