China's Rise Is Inevitable -- So Deal With It

Forbes Magazine ^ | 6-28-02 | Mark Lewis

[AIG]

NEW YORK - A decade ago it was Japan that touched off nationalistic fears among Americans who worry about being out-competed by Asian industrialists. Now it is China's turn to generate the scare stories. The reflex cannot be helped, but nor should it be indulged in any policy sense. China's rise is inevitable and should not be viewed as a threat.

Consider this front-page story in today's New York Times: "China Emerges as Rival to U.S. in Asian Trade." That sort of headline will become commonplace in the next few years as China increases its dominance of East Asia's economy. Yet at the same time, U.S. exporters will benefit from the growth of China's internal market, and U.S. consumers will benefit by buying China's low-priced and increasingly high-quality exports.

China's rise does call for an adaptive response from Washington, which must find a graceful way to accommodate itself to the new regional superpower. But in terms of trade, the key policy already is in place--China was last year ushered into the World Trade Organization, under whose auspices this formerly closed society will be fully integrated into the global economy.

Of course, there's still the little matter of Taiwan, which the U.S. is pledged (in vague terms) to defend. The best-case scenario: China's embrace of capitalism forces it to evolve into a full-fledged democracy, as people who gain economic control over their lives insist on political control as well. If that happens, Taiwan will end up clamoring to merge with the mainland in order to avoid the fate of China's other small neighbors, which will find themselves overshadowed by the revitalized Middle Kingdom.

Let's minimize the hand-wringing over this situation. Would anybody seriously prefer that China had remained shackled to the Maoist precepts that kept its economy small and weak? In any case, that's not an option. China's emergence is a fact to be recognized rather than fretted over. And it is also an opportunity, because America with its flexible economic system is well positioned to adapt to new realities and benefit from them.

The supposed threat from Japan generated a lot of concern in the early '90s, yet nowadays the scare headlines are all about Japan's economic decline, which is seen as bad for the United States. If China's economy runs into serious trouble, that too will be bad news for America.

But China, even if it stumbles along the way, is a much better bet than Japan to eventually achieve regional dominance, both politically and economically. This will make some Americans nervous. They may as well start getting used to the idea now--and make plans to take advantage of it.

[Timesink]

Right. The Chinese know it. That's why they started reform.

Unfortunately, they define "reform" as "indoctrinating the youth of the nation into pathological nationalism." There's hardly anyone in China under 25 who doesn't think their nation is destined to rule the world and that they are the superior race of the planet, because they've all been programmed that way since Tienanmen Square. The Chinese people are being trained to think and act a certain way more than ever; the only difference is now they're good little soldiers for the "Motherland" instead of for Mao.

[maui_hawaii]

Researchers at the New York Federal Reserve Bank estimate that only 20 percent of China’s total imports reach China’s domestic markets, while the other 80 percent consist of capital goods and industrial inputs used for the country’s exporting zones.7

China 'imported' approximately $216 billion worth of goods in Y2000

20% of that is $43.2 billion, Iceland on the other hand imported approximately $47.5 billion....

[AIG]

As for currencies, the US asked China during the 1997 Asian financial crisis not to let its exchange rate float freely which would have made the Asian financial crisis even worse.

[AIG]

The old Soviet Union didn't try to introduce capitalism in any way near the level China has done.

[AIG]

Again, what is wrong with an export-based strategy in the first place? Didn't Taiwan, Japan, S. Korea, etc. all grow rich from exports?

[AIG]

All countries are patriotic, even Americans.

[AIG]

The CCP already has factions. The right-wing factions want all-out capitalism, while the leftwing factions want to prevent state-sector employees from being laid off too quickly (for humanitarian and political stability reasons). Insofar as China is careful not to lay off state-sector employees too quickly, the CCP is sort of already acting in a democratic way by being responsive to the majority-poor masses' concerns about being laid off too quickly. I'm not sure if this is good though, as it may be in China's long-term interests to just pursue all-out capitalism (regardless of how many people are laid off) and use the power of the state to maintain stability while all-out capitalist reforms are being pursued.

[Lake]

>>There's hardly anyone in China under 25 who doesn't think their nation is destined to rule the world and that they are the superior race of the planet

Well, for the youth it may be true. But they are not adults and their thinking will change as they grow up.

[AIG]

Real solution: Force US consumers to stop being such penny-pinchers. When American consumers want low prices while American workers want high wages, something's got to give.

[Lake]

>>I'm not sure if this is good though, as it may be in China's long-term interests to just pursue all-out capitalism (regardless of how many people are laid off) and use the power of the state to maintain stability while all-out capitalist reforms are being pursued.

All-out capitalism is not feasible if you look at the Chinese history in which all dynasties and regimes were overthrown simply because they made people's life miserable. The former USSR is another perfect example. When I speak of democracy of the CCP, I mean it should function in a democratic way. The CCP was originally a revolutionary party with tough deciplines to restrain the conduct of party members. It has to be transformed to a political party similar to those in the west because the revolution is already over.

[maui_hawaii]

Researchers at the New York Federal Reserve Bank estimate that only 20 percent of China’s total imports reach China’s domestic markets, while the other 80 percent consist of capital goods and industrial inputs used for the country’s exporting zones.7

China 'imported' approximately $216 billion worth of goods in Y2000

20% of that is $43.2 billion, Iceland on the other hand imported approximately $47.5 billion....

Whats more.... the Phillippines imported $43.1 billion, which puts the Phillippine market on par with the Chinese market...

As with the US and other developed economies, 80% of the demand is made up of individual consumers. Not so in China.

If even a portion of the money going to China gets shifted to the Phillippines a marvelous thing will happen... capitalization. Which is a good thing. The actual size of the consumer market will grow at a rate far greater than China can ever hope to post...

With only 10 or 20% of the investments going to China, the Phillippines would import twice or three times as much as they do now...

[AIG]

Right, all-out capitalism is not feasible. This is why China can't lay off all its state-sector workers overnight. This is a reflection of the leftwing factions in the CCP who want to prevent abrupt, massive layoffs of state-sector employees for humanitarian and political stability reasons. Insofar as both leftwing and rightwing (pro-capitalist) factions already exist in the CCP and push their respective policies, the CCP would already seem to be behaving in the democratic way you envision.

[maui_hawaii]

China is big. Too big. Especially to effectively do what they are trying to do. They absorb money and turns into a massive leakage.

[AIG]

The thing is that, given its limited population size, the Phillippines will never have as large a market as China. The issue here is potential market size. Even if you diverted all investment from China to the Phillippines, you'd probably over-invest because the Phillippines market simply can't generate enough demand to absorb that investment over the long term.

[maui_hawaii]

The problem is, is that our corporations are stupid with a capital S. They are strategizing on a Q1 vs Q2 method, instead of a long term plan of 10 or 20 years.

[AIG]

As we speak, foreign firms are moving their factories out of the Phillippines and setting them up in China. Apparently, they don't find the Phillippines very attractive. The Japanese complain that the Phillippines educational system doesn't produce enough high-quality workers, among other things.

[AIG]

If country A has 1.3 bil. people but country B has only 40 mil. people, it's in your long-term interest to put the bulk of your investment into country A. If you're Coca-Cola, each Filipino would have to drink 30 Cokes a day to equal the Coke consumption in China. By drinking 30 Cokes a day, Filipinos would all get diabetes and die, which doesn't help Coke any.

[maui_hawaii]

Singapore:

Population: 4.3 million

Imports: 129.3 billion (3 times as much as China, population 1.3 billion)

The China Dream is just that. A dream. People don't have the slightest idea how to tap China.

[AIG]

Is that why all the Singaporean firms are moving to China too these days? It's great that Singapore imports so much but Singapore's capacity to import is pretty much tapped out. Even the Singaporeans themselves have to move to China to seek new markets.

[AIG]

The $129 bil. figure is the total amount of Singapore's imports. The total amount of China's imports are about $250 bil. You have to compare apples to apples. And in the future, China's imports have room to rise while Singapore's doesn't.