China's rebalancing seen as positive for the region

Transcript

Pacific Island countries shouldn't be shy about bargaining with China in its hunger for resources to fuel its economy.

That's the advice of an expert on the Chinese economy who addressed the global implications of the Communist Party's Third Plenum at a major conference in Wellington this week.

The Third Plenum was widely heralded within China as a major turning point in the country's reforms.

Professor Song Li Gang is the Director of the China Economy Programme at the Australian National University and he told Sally Round about the rebalancing underway.

SONG LI GANG: The scale, the speed of China's industrialisation is unprecedented in a way, in terms of the large demand, the huge demand on the natural resources, both minerals and energy. So therefore you can see the strategy of the Chinese approach towards securing the natural resources is a global strategy because China's [natural resources] in per capita terms is only really enough to meet the demands of China itself therefore [it's] going abroad and searching for, securing long-term supply of resources especially the key mineral resources, energy in particular, including oil and gas.

SALLY ROUND: With the trajectory of growth that China is on at the moment, is this demand likely to waver at all?

SLG: Good question. In the past ten years it's on the rise and in per capita terms China is far from reaching the level of rich countries so therefore the demand will continue to be there but because of China facing the pressure of environmental concerns, the degradation, the carbon and the climate change imperative, China is therefore now embarking on a kind of rebalancing of the economy, growth, modernisation, industrialisation towards a new growth model in which the energy intensity, the resource intensity, the carbon intensity will be lower based on output but of course it's just started doing that so therefore in the transition period you can see very clearly that demand will be there. However for the new growth model to work the key factor is market means of readjusting. So give a proper incentive for individuals, for firms, for local government to actually [operate] in a most efficient way. But in doing so, that phase of development which has a very intensive use of resources might be shortened because China may be moving towards a new phase of development in which the resource intensities and emission intensity can be eased.

SR: This has implications for the likes of Papua New Guinea which has a huge gas project underway and with China's emphasis now on environmental concerns, is this going to be seen for PNG as a benefit?

SLG: Yes definitely. I mentioned China heavily relies on coal. In the long run of course you have all the renewables ... renewables is only 8 percent, so in the next five years it can probably rise to about 15 percent, but it's still not enough. Coal is still dominant, right ... 60 percent!  Therefore LNG is probably in the medium term very promising. Australia has a supply, Central Asia and Russia further east ... it's all gas, a gas story. So gas in the short to medium term can be a very efficient alternative for replacing coal. So even Papua New Guinea has projects going on. I think it's promising to export to China, to meet that demand.

SR: How big a resource does China see the Pacific Ocean, that is the seabed and marine resources?

SLG: I am not an expert in that area but I suspect that it will be very important. I think probably for the South Pacific, very importantly, has to find a way of developing, nurturing this kind of relationship with China, on good terms. You know it's kind of a mutually beneficial relationship. It's not just simply to compare "big China" and "small Pacific". I don't think that is the right term. Maybe some certain kind of co-operation among South Pacific countries are needed but also Chinese companies need to get the message - development of resources is part of the South Pacific development strategy. For example green use of technology, environmental concerns. You know you don't just want to build mines and then pollute the land, the river and the sea etcetera. So of course I think Chinese companies are also learning very quickly to be very accountable in going abroad especially investing in projects that are resource-related, so they're learning those lessons, some bad lessons, but they are learning.

SR: Is that because of push-back from those countries that have the resources?

SLG: Obviously they can voice their concern directly to the government, they can convey the message to the companies. They can also through all means strengthen their bargaining, negotiating positions with Chinese companies so all these things can help and again let me emphasise the earlier point about being mutually beneficial. China will benefit that's for sure but the local company has to benefit. For the South Pacific, my advice to them is try to avoid the so-called "resource-curse". That is when the rich country, they rely too much on resources, exporting etcetera and in many cases is controlled by the big mining company in a way, so they benefit little. At the same time because of the resource boom, there is no magic in correcting the "resource curse". The best way is to get the right institution, government reform, legal system reform, accountable, human capital, expertise etcetera so make the system more transparent, more accountable. Chinese companies need to accept that because they benefit from you know buying resources so therefore they have to deal with that country, their needs, try to be more consistent with the so-called national development goals of those countries.