China looms large in the northern economy
August 11, 2014
China, as the second largest world economy and one of the fastest growing, looms large over the northern economy.
American scholar Stephen Roach in his book “Unbalanced: The codependency of America and China” describes at a high level what has happened in the past three decades between the world’s two predominant powers.
America, the market oriented super-power with a political system that resists making hard choices, leads to a situation where the US Fed pursues a series of easy money policies allowing budget imbalances to be ignored year after year. China, the centrally planned rising power that force shifts its savings pool into exports and export oriented industry. The result is a symbiotic relationship-America the consumer; China the producer. Yet things cannot continue much longer. The US economy is suffering from a dearth of real jobs—real incomes are falling. China needs to reduce its dependence on exports and boost the services sector of its economy. Chinese consumers need to spend more and to save less. US consumers need to save more.
Private consumption makes up only 35% of the Chinese economy—one half the percentage of the US. At around 47% of GDP, China’s embryonic services sector remains well short of the 60-65% share that a middle-income economy typically possesses.
The impact of China on the economy ‘north of 56’ can be seen in a few areas:
- Investors seeking Chinese partners for funding and product markets, particularly in metals. For example, Yukon’s Selwyn Project in the Howard’s Pass zinc-lead district. Yunnan Chihong Zinc and Germanium Co. Ltd. , has invested approximately $90M to define Selwyn deposit as one of the largest undeveloped zinc-lead deposit in the world. Advanced Exploration Inc. has made overtures to Chinese investors for their Roche Bay iron ore deposit in Nunavut.
- Markets for metals. China consumes 40-60% of most metals, so too with production from Yukon’s Minto copper mine. In September the Imperial Metals plans to start operations at its $570 million Red Chris mine in northern BC. The copper ore will be destined for China.
- Equity investment dollars. In the oil sands sector, Athabasca Oil Corp.’s expects a long-delayed $1.23-billion payment from PetroChina Co. Ltd. for the sale of a minority stake in an oil sands project. PetroChina exercised an option in April to acquire Athabasca’s 40-per-cent interest in the Dover project.
- Markets for LNG. BC is planning a number of LNG export projects to east Asia, including China.
- Markets for oil. As Canada continues to increase production from the oil sands, transportation of oil to markets like China would help diversify markets and boost exports.
- Markets for uranium. About 25% of the world’s uranium is produced in northern Saskatchewan. China has 21 nuclear reactors and is building 28 more reactors. China produces no uranium itself.
The trend that is apparent is that China is urbanizing. The Chinese consumer is gaining in affluence. The demand for energy and metals continues to grow.
China is an important source of investment capital and markets for northern commodities. It is still a society with a per capita income of 1/8th of the US or Canada. It is urbanizing and growing, opening up opportunities for northern economic development.
- a)Stephen Roach, "Unbalanced: The codependency of America and China", Yale, 2014.
- b) http://www.project-syndicate.org/commentary/stephen-s--roach-laments-the-disappointing-results-of-july-s-strategic-and-economic-dialogue#405ur1wtBmPmejjK.99