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.

[maui_hawaii]

The U.S. has been a key investor in the Chinese economy over the last ten years, with U.S. data indicating the direct investment position growing from $354 million in 1990 to $9.58 billion in 2000. Including Hong Kong, the gateway by which many U.S. firms gain access to the mainland, China became the preferred location of U.S. FDI not only in Asia but also among other developing nations. Only Mexico (as a result of NAFTA) and Brazil attracted more U.S. investment among the developing nations than China/Hong Kong over the second half of the 1990’s, and in 2000 China overtook Mexico as the U.S.'s largest investment target.29 Increasingly, U.S. firms have sought not only market access with their investments, but also low-cost manufacturing platforms to better compete in the global market.30 According to Morgan Stanley, "China’s massive consumer and labor markets do set it apart from the rest of the world, and for many U.S. firms, there is simply no choice but to be on the ground there."31

Like I said, our corporations are stupid with a capital S. They base their decisions on faulty logic and group think. They also make decisions on faulty data, and ideology, instead of what works.

[Libertina]

You fear China more as a capitalist country than as a communist one?
You are confusing capitalism (financial) with "our" democratic republic, (life philosophy) founded by men who believed in freedom and God. Capitalism by itself doesn't automatically make a country our friend. Besides, communist China isn't practicing capitalism as we have here in the US - they are of course doing thier own little rendition of some open market backed up by lots of communist control. You know, "Capitalism with Communist Chinese Characteristics."

[AIG]

In general, the Singaporeans, Japanese, Koreans, Taiwanese, Americans, etc. are all moving factories to China. It's a widespread phenomenon.

[Lake]

>>Singapore:

>>Population: 4.3 million

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

Are you sure you didn't mistype anything here?

[AIG]

It's better than no capitalism at all.

[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....

[maui_hawaii]

Population: 4,300,419 (July 2001 est.)

...

Imports: $127 billion (f.o.b., 2000)

Imports - commodities: machinery and equipment, mineral fuels, chemicals, foodstuffs

Imports - partners: US 17%, Japan 17%, Malaysia 16%, Thailand 5%, China 5%, Taiwan 4%, Germany 3%, Saudi Arabia 3% (1999)

Pretty sure. No mistakes. I cut and pasted.

CIA factbook

[AIG]

Like I said, our corporations are stupid with a capital S. They base their decisions on faulty logic and group think. They also make decisions on faulty data, and ideology, instead of what works.

When American consumers want low prices and American workers want high wages, US firms have little choice but to set up factories in China. It's all very logical. Wal-Mart is the biggest US company now in terms of revenues, so how can you say it doesn't work?

[maui_hawaii]

Of course, don't forget post #146

[AIG]

Singapore imports $127 bil. worth of stuff, of which 17% or $22 bil. comes from the US. Singapore is a more export-oriented economy than China, so less than 20% of that $22 bil. is destined for Singapore's own domestic market. 20% of $22 bil. is about $4.4 bil. Singapore's $4.4 bil. vs. China's $44 bil. is a big difference.

[maui_hawaii]

US corporations have ignorant and short sighted business models. The extra savings from costs are only sometimes passed on, usually just enough to undercut the competition...

Once they get a lock on the market, they up the price...

[AIG]

Why is it OK for Singapore, Taiwan, S. Korea, Japan, etc. to get rich from exports but not for China???

[maui_hawaii]

To corporations its about margins and profits, which they try to maximize, every quarter...like I said, they have a quarter to quater mentality

[Libertina]

Yes, but it doesn't mean that all is well with "us and them" either. I for one have NOT forgotten or forgiven the jet incident. I too have lived in Asia, know both the Taiwanese and the Chinese. And because I have, I KNOW the Chinese government is NOT my friend. And often where nations' governments go, the "people" will follow.

[AIG]

Wal-Mart, by buying cheap goods from China, is giving American consumers the biggest "tax cut" imaginable. The money US consumers save by shopping at Wal-Mart is money they can use for other purposes. This is the classic way how China helps Americans maintain their standard of living.

[AIG]

Americans continue to shop at Wal-Mart nonetheless.

[AIG]

Why do you blame corporations when it is US consumers' lust for cheap products which has forced US corporations to set up factories in low-cost China in the first place?

[AIG]

As I said before, if American consumers weren't such penny-pinchers, China wouldn't be getting rich off of them in the first place.

[maui_hawaii]

The same 20% dynamic isn't true in Singapore.

Exports: $137 billion (f.o.b., 2000)

Exports - commodities: machinery and equipment (including electronics), chemicals, mineral fuels

Exports - partners: US 19%, Malaysia 17%, Hong Kong 8%, Japan 7%, Taiwan 5%, Thailand 4%, UK 4%, Netherlands 3.8%, China 3%, South Korea 3%, Germany 3% (1999)

Exports to the US: $26 billion

Imports from the US: $21.59 billion

Thats a .83 ratio

China on the other hand imported $16billion from the US while exporting $100 billion.

Thats a .16 ratio

The closer to 1 the better.

[Jordi]

In the next 20 years there will be three new players on the world stage,all of them would have their "place at the sun": China,India,United Europe. If two of them will be America's alliate, the world will keep on being a safe place. Else, there will be troubles...