2005: Economy strong on sound track
Jian Er

China's great energy demands to fuel its dramatic economic expansion were in the spotlight at the Seventh China Daily CEO Roundtable Conference themed "China: 2005 and beyond," which was jointly organized by China Daily and the Asia News Network (ANN).

At the conference held on Friday, keynote speaker David Li, chairman and chief executive of the Bank of East Asia, said that energy, together with currency, domestic interest rates and the cross-Straits tension, were the four major factors that would have the greatest bearing on the future development of the mainland.

Twenty-six representatives from various industries ranging from property, information and technology and academics to financiers were bullish about the economic prospects of China. They agreed that energy security is a primary issue for China, given the country's soaring energy consumption as well as its increased reliance on imported oil.

"With energy demand rising in step with China's remarkable economic growth, China now must deal with the hard truth it faces a widening energy deficit," Li said in his opening remarks.

He said China was still a net exporter of oil as recently as 1995, but the country had surpassed Japan to become the world's second largest oil importer in the past two years.

In addition, China's growth in primary energy demand among the four most energy intensive nations China, the United States, Japan and Russia has doubled over the past 18 years. The Energy Information Administration, a unit of the US Department of Energy, predicts China's demand for energy will double again by 2020.

The problem for China is not only the reality that demand for energy is far greater than the country's domestic supply, Li said, but also the fact that China is only a minor player in the international oil and gas exploration and production industry.

Furthermore, China's own oil companies are unlikely to improve the country's energy security through drilling alone, and buying proven oil reserves is an expensive way to guarantee energy security.

All the above disadvantages combined have put China in a very vulnerable position as it relies on foreign sources for an ever greater share of its energy needs, Li said.

To address the problem of energy shortages and increase sources of supply, Li said China has pursued a multi-pronged approach including turning to natural gas imports and building pipeline projects as well as developing other sources of energy such as hydro-electricity and nuclear power.

For example, China expects natural gas, an energy alternative superior to coal from an environmental point of view, will account for 10 per cent of the country's energy demand in 2020, up from the current 2.5 per cent.

The government aims to accomplish growing demand of natural gas through its own reserves and imports as well as building gas pipelines with other countries.

One case in point is the Guangdong LNG (liquefied natural gas) project, China's first natural gas importing project, Li said. In addition, China signed a preliminary agreement with Iran for a natural gas deal three times the size of the Guangdong LNG project last month.

Furthermore, the country's capacity of hydro-electric power, which currently contributes 5.5 per cent of total energy supply in 2003, is expected to double by 2020, and nuclear power capacity is also projected to triple during the same period.

"We can expect significantly more emphasis on non-conventional technologies and energy conservation in the future. China has great incentive to develop its own technologies for such processes as coal-to-fuel conversion, for hybrid vehicles as well as for others," Li said.

"China has both the incentive and the capability to be a world leader in such technologies and this is certainly an area to watch over the next decade," he said.

Bringing another factor that will influence the country's economic prospect into the discussion, David Li offered his analysis about the currency movement.

China's growing overseas investments in everything from mining companies, timber licenses to steel mills indicates that more of China's foreign reserves will be re-circulated into productive investments in the future, easing pressure on the renminbi, he said.

Li believes that China will not be pushed into revaluing its currency. "Certainly, the economy is large enough and capital controls effective enough to wait out speculators," he said, adding that with the renminbi being part of a larger currency union in Asia, China would be less open to political and speculative pressures.

As for whether China will again raise its interest rates to rein in the red-hot economy, Li said he believes China will continue to apply administrative measures as necessary to cool specific sectors. But it is unlikely there will be a series of interest rate hikes along the US model.

Li said cross-Straits relations would have a key influence on the country's overall development in the future.

Li said President Hu Jintao's recent trip to Latin America was of great significance. China struck a chain of deals to be recognized as a market economy with Brazil, Argentina, Peru and Chile during the president's trip.

Considering the growing status of China on the international stage, any intent to provoke tension across the Taiwan Straits is against the interests of its people as well as the international community, Li said.

Allen Choate, director of Programme Development of the Asia Foundation, and Stephen Mosely, president and managing director of L'Oreal (Taiwan/Hong Kong/Viet Nam) echoed that cross-Straits tension was by no means beneficial to anyone's interests. Taiwan's incumbent leadership does not have a clear or correct understanding of the reality, Choate said. They are making policies that are not in favour of Taiwan people.

Mosely said the Taiwan authority is paying less and less attention to the interests of its people.

"All in all, to understand China, we can no longer look at the country in isolation, but must consider its role in the world as well," Li concluded.

Charles Chau, managing director (North Asia) of MTV Networks, agreed with Li. "No global strategy of a multinational company can be completed without a big chart of China," he said.

Vincent Lo, chairman of Shui On Holdings Ltd, said he was bullish about China's economic prospect in the coming year. "Despite the administrative measures, China's economy is still very strong, with demand and prices of real estate continuing to rise."

Victor Koo, president and chief operating officer of SOHU.com, said he believes China's economic growth will be moderate next year. The growth of the advertising market in China for instance, Koo said, is estimated to be 50-60 per cent this year but will decrease to 30-40 per cent next year. The growth rate will slow down but still on a fast track, he said.

In addition to the four major elements, Chen Pao-yin, regional executive (Asia Pacific region) of AIG Consumer Finance Group, suggested that China should make further investments in financial infrastructure. For example, Chen said the government should encourage not only State-owned banks but also private enterprises to join forces to build credit data bases for financial institutions and consumers as well.

While other participants shared views on the development of China, Tim Krause, senior manager of East Asia & Pacific department of the International Finance Corporation, highlighted the importance of environment to the country's sustainable development. Krause said protecting the environment during the course of China's rapid economic development is of equal importance as energy security because it ensures a solid reserve for sustainable development in the next decade and beyond. Ping Lee, president (North Asia) of Atos Origin, and Vernon Moore, deputy managing director of CITIC Pacific Ltd, as well as Kevin Rollenhagen, president of the Swatch Group (Hong Kong) Ltd, expressed concerns that imbalanced development and growing disparity between urban and rural areas in China would add to instability in the country.

(December 6, 2004)

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