The demand for coal -- mainly from domestic sources -- will increase as China's economy expands. China became the world's second largest consumer and third largest importer of oil in 2003. Currently, China imports over 40 percent of its oil. By 2025, this figure could rise to even 80 percent. Nuclear power and natural gas account for smaller, but growing, shares of energy.

As China's energy and resource needs continue to increase, Beijing has come to terms with the fact that special economic or foreign policy relationships in the Middle East, Africa, and Latin America are required. They will bring China closer to problematic countries such as Iran, Sudan, and Venezuela.

Resources play a vital role in increased Sino-Japanese tensions over the disputed East China Sea. A growing economy will foster China's desire for markets and natural resources such as metals and fossil fuels. Consequently, strategic patterns will follow the increased appetite for resources.

In 2004, China began to construct a strategic petroleum reserve, or SPR. By 2015, Beijing plans to build the SPR to the International Energy Agency standard of 90 days' supply. Poor logistics and transportation networks suggest this may still prove inadequate. For the near future, China will continue to rely on overseas sources for oil and other strategic resources. Smooth transport will be of utmost importance.

For this reason, China is looking for alternative transport roots. This is an additional drive to get control of the Pacific as far as possible. Beijing is also expanding and improving its relations with Angola, Central Asia, Indonesia, the Middle East including Iran, Russia, Mexico, Sudan, Saudi Arabia -- as recently as February 2006 -- and Venezuela.

The key target is to pursue long-term supply agreements. Additionally, those countries are located at key geo-strategic choke-points. Good relations do not only secure the access to resources but also secure passage. For that reason, the enhancement and improvement of a blue-water capable fleet is one of the strategic targets until 2050, and will include a more activist military presence abroad.

Deals with Mexico -- including a bilateral trade agreement signed in September 2005 -- on ore and oil opened up the U.S. backyard in Latin America. Mexico is only one example of Chinese engagement in the traditional U.S. sphere of influence. Additionally, a number of traditional U.S. enterprises have switched their production facilities to China, including United Technologies, BP, Coca Cola, General Motors, Ford Motor, General Electrics and Motorola. Those companies appreciate the Chinese frame for their activities and human resource mobility.

Chinese enterprises gained enormous profit in terms of management skills, networking and human resource management. It offers them a chance for global branding. Market entrances and branding introduction costs can be saved. For that reason, it is easier to produce at far lower costs.

A key development is the rising gap between demand and supply in general. This is not only a phenomenon in the current account, but also on the domestic stage.

China has been confronted with an ever-widening welfare gap. The gap exists between cities and rural areas, and between North and South. Then there is the "water gap" -- 80 percent of the nation's fresh water resources are located in the south, whereas 67 percent of the agrarian activities are done in the north.

For these reasons, the National People's Congress was forced to do something quickly. The candidness and openness by Prime Minister Wen Jiabao at the National People's Congress was remarkable.

Continued economic growth and reform are vital to the People's Liberation Army modernization and to China as a whole. Broad-based growth and modernization also enhance economic capacities in industry, technology, and human resources. It enables China's leaders to push for military modernization in relative terms.

If China is able to sustain past growth rates -- a challenge due to projected demographic changes, maturation of the industrial and technology base, and persistent financial inefficiencies -- its economy could expand to almost $6.4 trillion by 2025. For comparison purposes, in 2025 Russia's GDP is projected to be $1.5 trillion, Japan's $6.3 trillion, and the United States' $22.3 trillion.

(Andrea Reimer is a senior researcher for the Austrian Defense Academy and a frequent contributor to the Munich-based World Security Network. This article is reprinted by permission of WSN.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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