It's the next big thing. In the UK we may take China seriously, but it's not the overriding economic issue. In the US it's becoming a national obsession. Every month that passes there's another China statistic that spooks Congress yet more and ratchets up what is approaching paranoia.
China is the next economic and military superpower, runs the argument; and because it's communist, its methods are dark and its ambitions even darker. The US had better stop it now, or suffer the consequences.
It doesn't matter that after 25 years of near 10 percent growth that has created a US$2 trillion economy, most people still can't name a single Chinese brand, and that its aspirant multinationals -- Lenovo, Huawei, Haier -- are tiny by western standards. By this stage in its growth path, Japan was boasting Sony, Honda, JVC and Toyota, to name but a few -- a telling comparison about China's genuine autonomous economic strength.
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Nor does it allay American concern that three-fifths of China's exports are made by US, European, Japanese, Taiwanese or Hong Kong companies and not by native Chinese; they don't have the expertise, brand or technology. Made in China, as the Chinese increasingly lament, does not mean made by China. This is the world's final assembly center, not its workshop.
In the US, that's too nice a distinction; last year the US ran the largest bilateral trade deficit of any country in history. It imported US$240 billion of goods from China and exported a mere US$40 billion back.
The ratio of six to one is, says Fred Bergsten, director of Washington's Institute for International Economics, twice as bad as the ratio at the peak of the concern about Japan's export flood in the 1980s. And with Chinese exports growing at 25 percent last year, there's no sign that the ratio -- or the deficit -- is going to do anything but get worse.
the china card
Six industries have lobbied Congress and won special protection: textiles, clothes, wooden furniture, color TVs, semiconductors, and even Louisiana shrimpers. They are the harbingers of more. In the Senate last summer, New York's Charles Schumer managed to get a two-to-one majority on a `dry-run' vote calling for 27 percent tariffs on all Chinese imports unless the Chinese revalued their currency. Schumer promises a real vote unless the Chinese do more than the trivial adjustment that they made last summer.
On his state visit to Beijing in the autumn, US President George W. Bush received a promise from President Hu Jintao (
Big corporate America is keeping quiet; indeed, it is partly to blame for the imports. Many companies have done well by playing the China card, sourcing production in China to pay wages a 30th of those in the US, lowering costs decisively and winning a big boost in profits. Both Ford and General Motors have sourced key parts in China to their advantage; and they are representative of a general move.
The US's largest retailer, Wal-Mart, imports US$20 billion worth of Chinese goods a year; on one estimate, China has saved US consumers cumulatively US$100 billion since 1980 in lower prices.
Manufacturing, after all, constitutes only a trivial proportion of the final value of a good in the shop or showroom; the bulk of the value lies in distribution, transportation, warehousing, financing, marketing and advertising. So it makes sense to cannibalize domestic US production to sustain the cost advantage that will underpin the dominance of the US' global brands.
The losers are the US' blue-collar workers in the closed or threatened factories and its small- and medium-sized businesses that used to be part of big multinationals' supply chain or that simply don't operate on the scale to justify a wholesale move of production to China.
Others fear what might happen in five years' time. As a result, there's an emergent coalition of Democrats worried about lack of worker rights, human rights and unfair competition, and Republicans worried about small-town American business and resurgent communism, even if everybody accepts that Chinese communism looks more like authoritarian capitalism than anything else. Both sides think it's outrageous that China subsidizes its exports by rigging its currency.
buying us firms
The 11 Democrat and Republican commissioners on the US China Economic and Security Review Commission, beginning its hearings again last week to assess the China threat, are tribute to the strength of feeling across the parties.
Charged by Congress to keep a watchful eye on China, this is one of the rallying centers for concern. It is the commission that has called for an across-the-board tariff on Chinese imports; the commission that is ferocious about the undervalued yuan; the commission that insisted that one of China's two big state-owned oil firms, CNOOC, was unsuccessful in its bid for Chevron last year. Precious US assets should not pass into the hands of the Chinese state, wrote the commission.
And it will be further attempts by the Chinese to repeat what the Europeans and Japanese have done -- buy US companies -- that is likely to prove as big a flashpoint as Chinese imports. Foreigners have US$1.5 trillion invested in the US; the Chinese share is a tiny fraction of this amount (although they own US$200 billion in US Treasury bills). As the world's now fourth-biggest economy, it is bound to increase its purchases of US assets, but in the current climate the reaction will be ferocious.
You can see the US' point. Very few of China's enterprises, even those listed on the stock exchange, are genuinely private; all benefit from effectively free loans from an indulgent state-owned banking system. Why should the US watch its assets fall into their clutches to strengthen an economy with which one day most US military planners believe they will be at war over Taiwan? Why spend billions of dollars maintaining 150,000 men and six nuclear-powered aircraft carriers in the Seventh Fleet in the South China Sea if the US suborns the effort by being soft at home?
If China's economy is hugely inefficient -- on World Bank estimates Chinese state-owned enterprises are less efficient now than they were under Mao Zedong
Over the next five years, China's exports are expected to double, creating the biggest shock the world trading system has ever had.
On the other hand, China's demand has underwritten the growth in the world economy; its import growth has virtually matched its export growth. It's in nobody's interests for it to relapse, and the scale of its achievement masks fundamental, deep-set problems that mean it is unlikely in the foreseeable future to be a genuine across-the-board economic and military challenger to the US.
But that is not the consensus view in Washington. The relationship between the world's two continental economies is edgy and becoming edgier. Both sides are highly nationalistic. Despite their interdependence -- it is China that has been the principal financier of the US's trade deficit -- the tinder is there for a full-blown trade war. If there is this degree of tension with US full employment, it will be explosive in the next economic downturn, with consequences that will affect the entire world.
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