Petropolitik, Sapian and China - Second in a Continuing Series

Everywhere we go today, we see a proliferation of products made in China; from the simplest plastic implements to some of the most complex microprocessors.

To explain China’s voracious demand for energy, lets examine its recent economic growth. Since 2000, China’s exports tripled to over $593 trillion. Government statistics report an employment rate of nearly 97%. This industrial progress over a short period of time is unprecedented in history even in the magnitude of post World War II reconstruction. A recent report indicates that of the world’s 50 worst polluted cities (i.e., most industrially active), the top 20 are in China.

China’s great industrial transformation has put so much stress on global oil supply and distribution. China, Japan, and a dozen other countries, including the Philippines, compete over limited petroleum distribution capacity in the Far East. In 2000, China’s oil consumption was about 4 million barrels everyday, and oil price then was less than $22/barrel. Today, China’s consumption has grown to over 7 million everyday - or about 1/3 of the total world oil demand. China is now the second largest oil consumer (after the U.S.), and third largest importer (after U.S. and Japan). China will add 5 million cars every year starting this year. A comparison, the Philippine oil consumption is merely 312,000 barrels per day.

Supply is increasing in arithmetical rate while demand increase in geometric proportion. Saudi Arabia is frantically pumping its wells double time to stabilize prices. But China’s growing demand and cold cash would quickly absorb the buffer supply. OPEC members, in cohort with oil cartels, seem to enjoy the world attention to volatile Middle East and ripples by Venezuela and Bolivia that even an isolated kidnapping in Nigeria would bring them billions in windfall income.

But China could not live on oil alone. It also needs food to feed its army of factory workers and emerging industrialists Since we missed economic take off many times, we may have been destined to be the food producers. In fact, we have our comparative advantages over China. One of them, their coastline is only 14,500 kilometers - we have 36,000. Reason why China permanently encroach into our 200-mile Exclusive Economic Zone.

A few weeks ago, my former boss, Demetrio Ignacio, now Undersecretary of Department of Environment and Natural Resources (DENR), participated in a signing ceremony for an agreement with Fuhua Agricultural Group of China. Fuhua is investing $5 billion for a food industrial park and in planting one million hectares of hybrid corn in Camarines Sur, Lanao del Norte, Isabela, Occidental Mindoro, Tarlac and Nueva Ecija. http://www.newsflash.org/2004/02/be/be003383.htm

We need more export-oriented agro-industrial projects like this. It’s the only way to offset our widening trade deficit and to brace up for the oil crisis that is yet to come. Oil situation would worsen by the day as high gas prices would cause inflation. But who knows, inflation, among other adverse economic implications like higher interest rates and minimum wages, would increase production cost in developed countries. The recourse would be to move factories to countries with cheaper labor, as long as they are not very corrupt, has political stability, uninterrupted electricity, and guarantee no labor strikes.