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]

Nikes cost $200 bucks, but they are made in China.

[AIG]

As we speak, the US military is trying to contain China but maybe the US military should blockade off the Wal-Marts in America's neighborhoods from US consumers. Maybe that would be more effective.

[AIG]

Singapore's got much higher labor costs than China so, of course, the trade deficit is gonna be smaller. Again, it's stingy Americans who cause the big US-China trade deficit in the first place. You should be starting a campaign to make Americans stop being so stingy.

[maui_hawaii]

It is by far not the consumers who are penny pinchers or lust after cheap products. Americans spend like mad. They save nothing, in fact go into debt to keep on spending.

Its the businesses who drive down costs and up prices in a bid for higher profits each and every quarter.

Nothing is wrong with profits, but the Q to Q way is a greedy and short sighted way to look at things.

[AIG]

High-priced Nikes are the exception, not the rule. Every American knows they can buy cheap goods at Wal-Marts, which are Chinese-made goods for the most part.

[AIG]

Americans spend like mad but they still like to buy bargains which is why Wal-Mart parking lots are always so full and why Wal-Mart has grown as much as it has.

[maui_hawaii]

You should be starting a campaign to make Americans stop being so stingy.

What the heck do you think I am doing?

Like I said though, its not the consumers. Its the businesses. Even if I don't want Chinese stuff, as many will attest, what choice is there? Especially with our corporate mob mentality and lust for Q over Q profits.

I am openly challenging the way many corporations, including Wal Mart operate their businesses.

[AIG]

The entire US retail environment over the past decade has been about the growth of discount retail chains like Wal-Mart, dollar stores, etc. This phenomenon is correlated with the economic rise of China, which supplies these stores' merchandise. Americans know a good bargain when they see it.

[maui_hawaii]

Wal Mart gets to pay its people so damn much and 'grow' because it buys stuff from China for $.05 and from slave labor, but sells it in the US for $1.95.

All I am saying is it won't kill them to pay $.10

[AIG]

Corporations are only responding to their stingy US customers. In addition, it's not China's fault that US consumers are so stingy.

[AIG]

Eventually, China's wages will rise. They already have, so much so in the coastal areas that US and other firms are having to set up plants further in-land into China's interior to access still-cheap labor. As you may know, China's coastal-area per-capita GDP now is about $4,000, which is $3,000 higher than the national average. So wages are rising. Just as Taiwanese, Korean, Singaporean, etc. wages gradually rose over the past several decades as their export-based economies grew, so are China's wages gradually rising.

[maui_hawaii]

As soon as Wal Mart can get more money from stingy US consumers, it will. But they still won't be paying any more for their Chinese stuff. Haven't you ever studied marketing or economics?

[AIG]

As I said, China's wages in its coastal area have risen, largely because of the export-oriented economies of these areas. As foreign firms set up factories gradually more in-land, it will help China's interior regions' wages gradually rise too. This is a perfect situation for China to economically develop its interior regions.

[AIG]

If Wal-Mart has some potential monopoly, I'm sure the US government would eventually address that, so don't worry.

[maui_hawaii]

Hopefully Chinese wages will rise. So far there is little evidence of it. Also, the CCP is very worried about the wage differences between 'the masses' and 'the capitalists'

[maui_hawaii]

No Wal Mart monopoly, but they definately practice Return on Investment. Do you bring in 10,000 people to make $1m dollars, or do you bring in 8,000, but with higher prices and make the same $1m?

Isn't it cheaper and easier to deal with less people, but still make your profits?

[AIG]

If an income gap exists between China's coastal and interior areas, it necessarily means that wages have risen in the coastal areas, doesn't it? The fact that an income gap exists is all the evidence you need that wages have risen.

[maui_hawaii]

On those terms, I will give you that one. In fact some wages in China have grown A LOT compared to 20 years ago.

[AIG]

Wal-Mart's return on investment is fine as it is. Plus, higher pricing might defeat Wal-Mart's strategy of undercutting competitors in the first place. Wal-Mart's strategy is to be the low-cost producer which means to simultaneously undercut and defeat and take market share from competitors while generating a perfectly adequate profit for itself. If Wal-Mart's prices were higher, it might not be able to exploit the durable competitive advantage of being the low-cost producer, which is what guarantees that Wal-Mart will stay in business for the long-term.

[maui_hawaii]

I will leave it at what I've said already. I need to get some sleep.