Although China is half a world away from South Africa, what happens in China will probably set the course for South Africa for at least the next two decades as 1,2-billion Chinese consumers enter a material-intensive consumption phase similar to the one western Europe went through in the 1950s and 1960s.
China will therefore set prices for commodities ranging from oil to gold to platinum to iron ore over this period.
Balancing fast and smart growth
Measured at market exchange rates, emerging economies account for less than a quarter of global output. But measured using purchasing power parity (PPP) they account for almost half.
Small wonder, then, that global economic rankings are dramatically transformed when they are done on a PPP basis rather than market exchange rates.
The United States remains number one, but China leaps from seventh place to second, accounting for 13% of world output. India jumps into fourth place ahead of Germany, and both Brazil and Russia are bigger than Canada.
The way in which economies are measured also has a huge impact on which country has contributed most to global growth in recent years.
Using gross domestic product (GDP) converted at market rates, China has accounted for only 7% of the total increase in the dollar value of global GDP over the past three years, compared with America’s 25%. But on PPP figures, China has accounted for almost one-third of global real GDP growth and the United States only 13%.
This exchange rate distortion is also evident in South Africa where the nominal GDP grew by only 7,9% to R1,209-trillion in 2003 on 2002, whereas in US dollar terms it grew by 50% to $160-billion.
This is one of the reasons why South Africans feel wealthier and more optimistic about the future even though the official data shows that real rand GDP growth has been below population growth for the past four quarters.
This helps to explain why commodity prices in general and oil prices in particular have been surging, even though growth has been relatively subdued in the rich world since 2000.
Emerging economies are not only growing much faster than rich economies and are more intensive in their use of raw materials and energy, but they also account for a bigger chunk of global output if measured correctly.
Even if a Chinese Big Mac hamburger costs less than half of one made in the United States, it uses the same amount of flour, beef and lettuce.
That is why South Africa’s export commodities such as platinum and iron ore are much more geared towards Chinese demand than developed country demand. ‒ I-Net Bridge