China Races to Replace US as Economic Power in Asia

Peoples Daily (CCP NEWS) ^ | 6/29/02

[Enemy Of The State]

China Races to Replace US as Economic Power in Asia

 

From South Korea to Indonesia, China is rapidly strengthening its economic presence across Asia, gobbling up foreign investment and chipping away at the United States' position as the region's economic engine, according to report by New York Times Thursday.

As it buys up goods, parts and raw materials from its neighbors as never before, China has accompanied its new heft with diplomatic efforts to assure them that it wants to offer cooperation, not competition. Many have rushed to China's embrace and are nimbly shifting their economic alliances, particularly as the United States makes its way through only a tentative economic recovery.

"For all these countries in Asia, China is such a large force, the only rational response is to figure out how to work with it," said Nicholas R. Lardy of the Brookings Institution. "It can't be stopped."

The United States still remains an essential trading partner for Asian countries but is becoming somewhat less important in the face of China's rise, analysts say. Some see China's economic thrust, more apparent now under its newly minted membership in the World Trade Organization, as the beginning of an inescapable process of China replacing the United States as the dominant power in Asia.

Inevitably, said James Castle, a longtime American businessman in Indonesia and until recently the leader of the American Chamber of Commerce here, "the policy leverage of the United States as the great market is sure to decline."

China is already an economic threat to Japan, the prime ally of the United States in the region, these analysts say. Mr. Lardy says China's trade is now growing at a faster rate than Japan's growth during its boom years in the 1960's and 1970's.

Asian exports are rebounding on the strength of this rapid expansion as China buys more and more from its Asian neighbors.

Here in Indonesia, President Megawati Sukarnoputri has buried age-old hostilities as she woos the Chinese government, hoping that it will award Indonesia a $9 billion liquid natural gas contract to power the industries of southern China.

At the same time, China is grabbing much of the new foreign investment in Asia, leaving its once-glittering neighbors --- Thailand, South Korea, Singapore --- with crumbs compared with the record $50 billion China is expected to gain this year.

China --- a hungry importer, a siphon of other nations' foreign investment and a surging exporter of cheap manufactured goods --- is forcing its Asian neighbors to adjust.

Some, looking to stave off China for as long as possible and in an effort to ensure a future balance in the region, have tried to hedge their position with the United States.

Singapore, for example, is in the final stages of negotiating a free trade agreement with Washington, trying to guarantee that its solid ties with the United States will continue.

So far, the Bush administration has been loath to talk publicly about China as an economic challenger in Asia. But on a recent tour through Southeast Asia, the United States trade representative, Robert B. Zoellick, dispensed advice to allies on the subject: he told the 10-member Association of South East Asian Nations, or Asean, usually a group of bickering competitors, that they had a better chance of surviving Chinese dominance as cohesive trading partners than as individual competitors.

While deep concerns about being left in the shadow of China endure, Asian leaders are choosing to praise China's rapid development as a benefit to their economies.

Singapore's exports to China surged by 69 percent in April, over the previous April, mainly because of petrochemical and pharmaceutical sales. Malaysia's exports to China have increased by more than 30 percent in the last three months, driven mostly by electronic products.

In a sign of the new realism about China, Asean, yet to agree on a free trade zone among its members, agreed last November to trade talks with China. The idea for the trade zone came from China, acting to alleviate resentment in the region over its new membership in the World Trade Organization.

Now a mutual courtship has emerged between China and its neighbors. "I look at China as a friendly force," said Indonesia's minister of trade and industry, Rini Soewandi. "It is a potential market for us and China sees Asean as a potential market for them."

President Megawati, who is taking a more independent stance regarding the United States than her predecessors, has visited China twice since becoming president less than a year ago. Until recently, Indonesia had viewed China as a hostile power.

Prime Minister Mahathir Mohamad of Malaysia told his fellow leaders they should stop looking at China as a "black hole" that sucked foreign investment from its neighbors. Dell Computer decided recently to move some of its computer-making facilities from Kuala Lumpur to China. But, said Dr. Mahathir, "We want to live with the fact that there is a China there and it is going to be a very prosperous, very big and economically powerful China."

At China's embassies in the region, diplomats are open to talk of new cooperation. "Economically we are more complementary with Southeast Asia than Europe is with the United States," said Tan Weiwen, the minister counselor for economics and commerce at the Chinese Embassy in Jakarta as he repeated the government mantra. "Everybody is comfortable with each other."

The sudden economic influence of China on the region is evident almost daily. New statistics from Singapore show that the country lost more than 42,000 jobs in the last five years, most of them to China. With the property market stuck in the doldrums, Singapore developers are moving to Shanghai to grab a corner of the boom in what is commonly regarded as Asia's most vibrant city.

"Singapore has to do things that the Chinese can't do," said Andy Xie, the chief economist for Asia and the Pacific at Morgan Stanley in Hong Kong, who believes that Southeast Asian countries will survive best by creating niche markets for themselves in China.

"Singapore stands for business integrity so when a Singapore company builds property in Shanghai, it sells well," Mr. Xie said.

Chinese tourists have become the fastest growing business opportunity for Asian countries. They peer at sites in Thailand and Malaysia that used to be the preserves of American and Japanese travelers. Chinese products are also appearing from China's Taipei to Jakarta. Cheap Chinese motorcycles, made at a joint venture plant, are flooding the urban centers of Indonesia, for instance.

As part of what China is calling its "go global" strategy, the Bank of China has opened branches in Thailand, Malaysia and Singapore and will soon reopen one in Jakarta.

But the key for China's neighbors, say analysts, will be how each one fashions its response to a growing China. South Korea, Taiwan and Singapore have recorded strong gains in exports to China in recent months.

But Mr. Xie said the strong exports by South Korea and Taiwan Province to China could prove to be a fleeting success. "The export story for South Korea and Taiwan may not be so good because the components and parts factories will shift to China," he said. "Anything with volume is likely to end up in China."

South Korea and Taiwan, as well as Malaysia and Singapore, will have to adapt cleverly by going further upscale, he said. For example, with its well-educated work force, Singapore plans to spend billions of dollars to reinvent itself as the biomedical center of Asia.

Indonesia, a major producer of oil and gas, appeared to be in a strong longer-term position as China looks to invest there to double its oil consumption in the next decade, he said. In January, the Chinese state-owned offshore oil company CNOOC bought the lucrative Indonesian oil and gas fields owned by the Spanish company Repsol-YPF for $585 million. Last month, the PetroChina Company outbid four rivals to buy the Indonesian assets of the Devon Energy Corporation for $262 million.

Some Asian officials say they fear that Southeast Asia will be relegated to the role of supplier of food and raw materials to China in exchange for cheap manufactured goods that will, in turn, harm their own businesses.

But for now, China's need for imported energy combined with its desire to diversify its supplies, from the Middle East primarily, is making Indonesia, at least, feel confident.

President Megawati's chief economic adviser, Laksamana Sukardi, arrived for breakfast with reporters recently carrying a Chinese-language book under his arm. "The future," he said.


Questions?Comments? Click here

[Sawdring]

What is China going to do if the Dollar stays low relative to the Yuan and all their cheap stuff can't be sold over here? If the US sinks, China goes with her and lands harder.

[Bedford Forrest]

Oh Please. Gag me with a spoon. These commie rice eaters can't even build their own U-boats. They have to buy them from the fricking Russkies. They can only build things when someone from the real world comes in, puts up a factory or a FAB or whatever and shows them how to do it. They are no different from the Japs. They are a derivative race. Name one thing, ONE!!!!, that these jerks have done first. Losers, bigtime. Plagiarists, to the core. Please note that the winners among them [a]emigrate to the US and[b]speak English. The poor sods don't even know how to make beer without help from the Krauts.

[LenS]

Consider the source -- The Peoples Daily.

[Brian Allen]

Book Review by John Derbyshire

The Washington Times - April 14th, 2002


Dream On


The China Dream
By Joe Studwell
Atlantic Monthly Press; 360 pp. $27

The dream of Joe Studwell’s title is the dream of the China market: of 1.3 billion consumers just waiting to be sold clothes, medicine, cars, toothpaste, or whatever else the dreamer has to offer. As an English writer of the 1840s put it: “If we could only persuade every person in China to lengthen his shirttail by a foot, we could keep the mills of Lancashire working round the clock.” The dream has been dreamed by many westerners across many centuries. For a very few — the opium merchants of the 19th century, the fast-food franchisers of our own time — it has actually come true. Much, much more often, it has proved to be only a dream, the waking from which has sometimes been abrupt and unpleasant.

In recent years there have been three cycles of dreaming and waking for foreign businessmen eager to tap into the China market. The first cycle began in the early 1980s, after a 50-year period when dreaming about China was out of fashion altogether. With the ascendancy of Deng Xiaoping’s faction following Mao’s death, it became clear that the fantasy economics of the Mao period had definitely been abandoned. So far as industry was concerned, they had mostly been abandoned in favor of the kind of incentivized state socialism attempted in Eastern Europe twenty years before. This was not much noticed, however. What was noticed was Deng’s maxim “to get rich is glorious,” and the revitalization of Chinese agriculture that followed the retreat from collective farming, and the surge in disposable incomes among urban Chinese from a Mao-era base very close to zero. Western businessmen, dreaming the dream, poured in to set up “joint ventures” with Chinese partners. The massacres of June 1989 are a convenient punctuation mark for the end of this first dream cycle. Many businessmen had already woken even before that, though; the book Beijing Jeep, published earlier that same year, told the dismal story of a typical “joint venture” fiasco.

The atmosphere of widespread state terror that followed the massacres offered a splendid opportunity for the Chinese government to administer some unpleasant medicine to an overheated economy. When this had been done to the leadership’s satisfaction, Deng started the second cycle of dreaming with his famous “southern tour” of early 1992, in which he urged his countrymen to go for maximum economic growth. Following the massacres it was clear that the Communist Party had no intention of going away; but it seemed, from Deng’s 1992 speeches, that it might be willing to leave the economy alone. This all happened just as the rising fad for “globalization” was seizing the attention of western business people. Once again, the dream took flight.

The actual experience of western business in China during the 1990s was closely watched by Joe Studwell, a writer on business and economics — he is founder and editor-in-chief of the excellent China Economic Quarterly — who lived in China for the entire decade. He saw the 1990s flood of dreamers arrive, bright-eyed and eager to engage this new, busy China. He watched the bright eyes glaze over as the reality of China gradually revealed itself to them. Signed agreements and “memoranda of understanding” turned out to be worthless; court rulings were not enforced; state-owned enterprises were exempt from costly environmental regulations; expensive licenses, processed by lackadaisical bureaucrats, were required at every turn; counterfeiting and abuse of intellectual property rights were rampant; the early-1990s purchasing-power models for the disposable income of the Chinese turned out to be too optimistic; ad hoc technical standards were used to impede trade; local management personnel were scarce, and of poor quality. As difficulties multiplied, the dream faded.

Then, in December last year, China’s accession to the World Trade Organization became official. As this author points out:

The government committed to the WTO from a position of weakness, not strength, because of quiet desperation, not unified political resolve. It reached for an outside force to do a job it was failing to do itself — the deregulation and de-bureaucratization of China’s economy.

WTO accession arrived just as serious disillusion was setting in among foreign investors in China. There are signs that it has initiated a third cycle of dreaming. Certainly the Chinese government hopes this is so. Knowing that they cannot solve their country’s economic problems without making political reforms they are unwilling to contemplate, China’s communists hope that the standards implicit in WTO membership, and the compulsory procedures for resolving disputes between members, will, all by themselves, force China’s domestic economy to shape up. Joe Studwell shows convincingly why this is unlikely to happen.

The China Dream will inevitably be compared with last fall’s book on the same topic, Gordon Chang’s The Coming Collapse of China (which I reviewed in these pages 8/12/01). Studwell’s book is lighter on cultural insights than Chang’s, but better organized and richer in hard economic facts. He notes, and abundantly documents, such large and intractable truths as the following:

For all the talk of reform, of retreat from socialism, of the unleashing of the energies of the Chinese people, and so on, government payrolls increased all through the 1980s and 1990s.
From being debt-free in 1979, China is now saddled with liabilities that will soon make her the world’s most indebted nation.
“Given the state’s determination to micromanage economic activity, there [is] almost no strictly legal way for foreign investors to make money.”
Studwell offers two possibilities for China’s near future: a long period of stagnation and low growth like the one Japan has been enduring, or a major fiscal crisis, with runs on the banks followed by Latin-American levels of instability and social disorder. He notes that neither scenario offers a very exact analogy to China: a stagnant debt-crushed economy with a per capita GNP of $25K per annum is not the same thing as one with $1K per annum, and Argentina has never had either Chinese levels of social and political control or modern China’s imperial responsibilities and hegemonic ambitions.

The author’s advice to foreign investors is to use the country as a manufacturing base for exports (if you can squeeze in among all the overseas-Chinese doing exactly that), but to engage in the domestic market only with utmost caution. It sounds right to me, though given the violence of regime change in China, and the xenophobic outbursts that traditionally accompany such change, I would add one more thing: keep a suitcase packed and ready under your bed at all times.

[Tedmeister]

Every thing "MADE IN CHINA" now, I try my best to not buy any of their junk. It's getting more difficult as time goes on. Seems that half of WalMarts inventory is "MADE IN CHINA". The Chinese continue to build up their military with the $$$ from American consumers.

[maui_hawaii]

This article originally appeared in the NYT…

My conclusions are that the appeal of China comes from the global economy, not the local economy. Belmont Mark is pretty spot on in the posting of the China Dream. The internal economy of China, is nothing to brag about. It is however linked at the hip to the global economy. If we let them, corporations are going to keep on importing like mad from China…the only exports TO China are the ones that help create exports to the rest of the world…even then, China wants to force sourcing from their own companies, not ‘foreign’ ones. Everything has to be made IN China, with CHINESE PARTS, FROM CHINESE COMPANIES. And they are going to enforce that too...

link

Globalization is China’s cash cow. Probably 95% of China's growth came from muscling in on the world economy.

link to the original post

My comments are posted there...

[maui_hawaii]

In other words the notion that Philippino (or other) car parts, or any other kind of part or services will be consumed in China, is a dream in and of itself. They might export a few services or products now but that won't last very long.

[Lessismore]

Many of the businesses in Southeast Asian countries are run by off-shore Chinese who have been the traditional trading and merchant class of those countries.

[Sonny M]

I can't find the article, but I do remember this year, Their diplomats were talking about the lack of creativity in chinese thinking. They felt that they were creating people for fields but not creating a thinking creative learning enviorment. They wanted to see how they could tinker with their own education machine to get a more inventive population. Basically, they don't create, they manufacture, one solution they are looking at which is doomed to fail is using confucian thinking and philosophy in limited doses. When you indoctrinate people not to question authority, you get people who don't think, and thus don't create.

[AIG]

Every culture has borrowed from every other. Romans borrowed from Greeks, Northern Europeans from Romans, Japanese from Americans, and now China from everyone else. Half the words in the English language have Greek or Latin origin. Today, more than 50% of US science Ph.D's are Asians. The next generation of America's science professors will be Asians. Lastly, there's no need for China to try to re-invent the wheel with respect to copying how many industries are operated and run. The Japanese copied most everything but that did not stop them from developing the world's second largest economy, nearly 3 times the size of Germany's. These days, with respect to certain strategic industries like semiconductor manufacturing equipment, Japan holds 7 of the top 10 essential patents.

[AIG]

Globalization is something the Westerners started. Westerners created the WTO, not China. China is just there in the right place at the right time to disproportionately benefit from globalization.

[AIG]

The fall in the dollar is only leading more foreign investors to pull their money out of America and into China. Moreover, China's production cost advantage over America is so great that no matter how much the US dollar falls, US consumers will still be buying cheap Chinese-made goods at Wal-Mart in droves.

[AIG]

The internal economy of China, is nothing to brag about.

This year, China will surpass Japan as the world's #2 market for home PC's. China is already #1 or #2 in a wide range of consumer products, from cell phones to TV's to light bulbs to air conditioners to refridgerators.

[AIG]

Everything has to be made IN China, with CHINESE PARTS, FROM CHINESE COMPANIES. And they are going to enforce that too...

Sure, every country tries to develop its own indigenous industries ultimately. The Japanese did it (Sony, Toyota, etc.), the Koreans did it (Hyundai, Samsung, etc.), and now the Chinese are doing it. Chances are, though, that China will be far more open to and less protectionist about foreign involvement in its industries than the Japanese and Koreans are. I'm speaking from personal experience here. The Japanese and Koreans tend to be a whole lot more hostile to foreigners buying stakes in their companies than the Chinese are.

[Classicaliberalconservative]

Actually I read this article in the New York Times originally.

[flamefront]

China Reform Monitor No. 453, July 2, 2002
American Foreign Policy Council, Washington, D.C.
http://www.afpc.org

Editor: Al Santoli

CHINA'S FRAGILE ECONOMY: THE NEXT ARGENTINA?


June 19:

In the June 19th Asian Wall Street Journal, author Gordon Chang wrote 
that
high expectations related to China's economy are grossly exaggerated. 
To the
contrary, China's economic growth is declining and its banking system 
in
disarray, posing a threat of destabilization to the international 
economy.
Excerpted, as follows:

"Leaders in Beijing use "grim" and "grave" when they talk about the 
economic
outlook today. Yet, some foreign experts assure us that everything is 
fine
in the People's Republic of China... Even according to the official
figures - which exaggerate China's output - growth declined in each 
quarter
of last year... There is also a more fundamental matter of how could a
country record high growth when it is experiencing worsening deflation 
and
massive unemployment."

"Today, the central government amounts for more than two-thirds of
investment in the country, alarming by any standard...  China is 
running
ever-larger budget deficits, just like the record one of $37.5 billion
announced for the coming year... China's annual deficit has already 
zoomed
past 3% of the GDP, the international recognized safety limit. The 
current
pace is unsustainable and out of control. Finance Minister Xiang 
Huaicheng
has just one word for China's recent spending, calling "reckless.""

"Unless it can patch up the situation, China risks becoming Asia's
Argentina... the people's Republic can go from boom to bust in just a 
few
short years. Both countries stuffed their banks with bonds, created 
growth
through fiscal means and attracted foreign direct investment...  
Argentina
deferred reforms by living on foreign capital, and China is playing 
this
same game, too... When the flow of international capital tightens 
again,
China's deteriorating fiscal and debt conditions will come under
international scrutiny."

"China as the next Argentina? Today, that sounds preposterous. Yet, it 
is
worth remembering that Argentina did not have to go through the shock
therapy of joining the World Trade Organization... For example, China 
has
lost control of the timetable to reform its banking system. The largest
state banks are insolvent, as a group perhaps the weakest in the world.
Beijing must rehabilitate them in the next half decade to the tune of 
$500
billion - or face the failure and the collapse of the economy itself."

"Beijing talks a lot about structural reform but has implemented very 
little
of it these past few years. In this upcoming period of political 
transition,
[with jockeying for the upcoming Communist Party leadership changes at 
hand]
the paralysis will become even more evident...  The critical issue is 
time.
Peasants and workers are impatient... Despite progress, many Chinese 
today
are hungry, angry and, worst of all, desperate. Beijing's leaders know 
how
to use the coercive power of the state to keep a lid on unrest. Yet, 
force
is only a short-term solution. Time is running out."

Copyright (c) 2002, American Foreign Policy Council

-------------------------------------------------------------
To subscribe to China Reform Monitor, please go to our automated
subscription page at  http://www.afpc.org/forms/subscribe.htm or send 
an
e-mail to Majordomo@afpc.org and write

subscribe crm

in the body of the message.

To unsubscribe, please send an e-mail to Majordomo@afpc.org and write

unsubscribe crm

in the body of the message. Back issues are archived at the AFPC web 
site
(www.afpc.org).

[WaterDragon]

China and the EU amaze me. They seem to have no conception of the glee with which we would greet their prosperity. And that is because we know the secret to prosperity....liberties, free-markets and trade. The economies of China and the EU will accelerate according to how well they accept this reality. They don't seem to understand, either, that the more prosperous other nations are, the more prosperous America becomes.

[BJungNan]

What is China going to do if the Dollar stays low relative to the Yuan and all their cheap stuff can't be sold over here? If the US sinks, China goes with her and lands harder.

The Yuan follows the dollar. The exchange rate has not changed. As the dollar weakens, so does the Yuan, which is just as good for Chinese exports as a lower dollar is for U.S. exports.

Places like Japan, Singapore, Australia will now be able to buy from China more easily.

[BJungNan]

Oh Please. Gag me with a spoon. These commie rice eaters can't even build their own U-boats. They have to buy them from the fricking Russkies. They can only build things when someone from the real world comes in, puts up a factory or a FAB or whatever and shows them how to do it. They are no different from the Japs. They are a derivative race. Name one thing, ONE!!!!, that these jerks have done first. Losers, bigtime. Plagiarists, to the core. Please note that the winners among them [a]emigrate to the US and[b]speak English. The poor sods don't even know how to make beer without help from the Krauts.

You should change your name to George Minafer and start a factory making quality, hand made furniture one piece at a time. George Orwell had something to say about your views a long, long time ago with his writing of the Magnificent Ambersons.

http://www.filmsite.org/magn.html