HELEN H WANG » globalization

Myth of China as a Superpower

Helen Wang — Thu, 15 Apr 2010 04:53:21 +0000

Many people in the West believe that China is already a superpower, or will quickly replace the United States to become a superpower. A recent poll by the Pew Research Center reveals that 44 percent of Americans believe that China is the top global economic power, while in reality, China’s economy is barely one-third the size of the U. S. economy. This kind of misconception has engendered many unrealistic fears about China.

The truth is that China is not a superpower, and I doubt it will ever become one.

Fareed Zakaria, CNN host and Washington Post columnist, defined in his bestselling book The Post-American World that a superpower is a country that achieves dominance in ideas or ideology, an economic system, and military power.

In terms of ideas or ideology, the Chinese are probably more confused than anyone else in the world. During the Cultural Revolution, many Chinese traditions, including Confucianism, were destroyed. Communism has proved to be disastrous, and no one believes in it anymore. In today’s China where money is king, people have become disillusioned with any notion of ideals. There has been serious moral decay in society.

In recent years, the Chinese government has called for building “a harmonious society.” Harmony is a virtuous concept deeply rooted in Chinese culture and the Confucian tradition. It could become a new ideology for China. However, it has been overly used in propaganda and has become a cliché rather than a meaningful ideal.

The United States remains the country standing for the universal ideals that people around the world aspire to – liberty and democracy. Unlike Americans who have a clear message for the world, the Chinese do not have a vision for themselves, let alone to influence the world. I have talked to Chinese officials, scholars, business people and students. None of them see China as a superpower. In contrast, many of them look up to the United States as a model and admire the “American way of life.”

Economically, China’s achievements are indeed impressive. In the past 30 years, China has sustained nearly double-digit growth. However, we need to keep in mind that China started from a very low level of GDP. Much of its growth comes from heavy investment in infrastructure. In 2009, China’s per capita GDP was only about $3,600, compared with $46,000 in the United States. Among the world’s top-10 largest companies, the United States claims five, and China has none.

With all the troubles on Wall Street, it is easy to forget that China’s economic success is actually a triumph of capitalism. In recent decades, China has been learning from the West and now primarily practices capitalism. Although China is searching for a recipe that suits the country’s unique situation, namely a “socialist market economy with Chinese characteristics,” it has been a trial-and-error exercise. China has not yet established an economic model that has proven it can withstand long-term tests.

Some people believe that China will eventually surpass the United States as the world’s largest economy. Others argue that the line between the U. S. and China may never cross. I believe that China’s economy will continue to grow rapidly over the next 10 to 15 years. After that, it will slow down when its per capita income approaches $10,000. That will make China’s economy close to the size of the U. S. economy.

Militarily, China’s military spending is only a fraction of what the U. S. spends. A 2009 Pentagon report estimated China’s total military spending at between $105 and $150 billion, compared to $719 billion by the United States. Until recently, China did not have a foreign policy or a global strategy. Even its current foreign policies are almost exclusively commercially-focused.

Harvard professor Joseph Nye has a more detailed analysis about whether China will become a contender with the United States. As he pointed out, “The fact that China is not likely to become a peer competitor to the US on a global basis does not mean that it could not challenge the US in Asia, and the dangers of conflict can never be ruled out.”

I think China’s influence in Asia will be limited. Who is China’s ally? Singapore? North Korea? India will be more likely allied with the U. S. than with China, and we know Japan’s position. As much as I love China, I have to agree with Singaporean scholar Simon Tay’s comment, “no one in Asia wants to live in a Chinese-dominated world. There is no Chinese dream to which people aspire.”

By all measures, China is not a superpower. With other major economies such as India and Russia on the rise, it is hard to see China ever becoming a superpower.

Despite all the problems the U. S. faces, I still believe that the United States has stronger long-term political and economic fundamentals than China. Many vital functions of Chinese society, including its education and healthcare systems, are far from sophisticated. China is not yet a country of the rule of law. The government still arbitrarily detains dissidents and censors the Internet. Corruption and nepotism are rampant. Chinese culture tends to reward the mediocre rather than the extraordinary. There are many uncertainties in China’s future including the ramifications of environmental degradation, an aging population, political instability, social strife and ethnic conflicts.

However, China will be a major economic power. It will probably be the second most important country in the world after the United States on many critical international issues. China’s presence as a major economic power will be good for the world as well as for the U. S., because no one wants to live in an American-dominated world either. China’s strength is that it can be assertive without being confrontational. It is crucial that the United States makes China a partner, not an enemy, because the future of the world’s prosperity and stability depends on it.

Unlocking the power of Chinese consumers

Helen Wang — Mon, 29 Mar 2010 22:53:23 +0000

An interview with Stephen Roach by Clay Chandler, the McKinsey publishing group’s Asia editor in Hong Kong.

In China’s rush to join the global economy, the country stoked exports and government-led investment but neglected to build social and economic institutions needed to encourage consumers at home. Stephen Roach, Morgan Stanley Asia’s chairman, says its time for the world’s fastest-growing economy to find a “back-up plan.”

Myth of China’s Manufacturing Prowess

Helen Wang — Wed, 10 Mar 2010 04:33:02 +0000

People often compare China’s urbanization to Western industrialization in the 19^th century. In both cases, a large population moved from the country to the city. Society advanced from agricultural to industrial via manufacturing on a massive scale.

However, there is a key misconception about China’s manufacturing prowess.

In the United States and Europe, the manufacturing industry was created due to technology innovation. For example, railways came into existence because of the invention of the steam engine and automobiles were created because of technology breakthroughs in automobile engines.

In China, the manufacturing industry is being created in response to global demand. Chinese manufacturers take orders from Western companies that have designed products for their home markets. They have no involvement with product development, innovation, market research, and even packaging. Chinese manufacturers have no experience in bringing their own products to overseas markets.

Unlike the manufacturing industry in the West that gave birth to a middle class of both white-collar and blue-collar workers, manufacturers in China mostly absorb surplus labor from rural areas with few skills. Those rural migrant workers live in dormitories, earn about $100 to $200 a month, and hardly fit into the category of the middle class. (To be clear, there is a burgeoning middle class in China. Most of them are in urban private businesses, state-owned enterprises, and multinationals).

James Fallows, national correspondent for the Atlantic, visited many factories in China. He saw people working on the assembly lines and was convinced those tasks would only be performed by machines in the United States.

Yes, China is making efforts to drive its economy up the value chain. The 11th Five-year Plan (2006 – 2010) called for “scientific development.” A key initiative is an increase in the R&D-to-GDP ratio from about 1.3 percent in 2005 to 2.5 percent by 2020. However, how much of the funding is actually used for research and development and how well the research is being transferred into manufacturing are both highly questionable.

Given the unpredictability of the regulatory environment, many Chinese manufacturers tend to focus on short term gain. They compete on volume and price, and only enjoy wafer-thin profit margins. This has kept Chinese manufacturers from investing in research and development or training employees.

Recently, some Chinese manufacturers experienced a shortage of low-waged workers. On the other hand, millions of college graduates have been unable to find jobs. With college tuition sky high, more and more young people are turning to vocational schools, which may offer better prospects of employment at lower cost. This means a majority of Chinese workers may be trapped in low-skilled jobs, making China’s move up the value chain even more challenging.

While the rest of the world fears China’s manufacturing power, China is trying to move away from its “sweatshop” manufacturing and become a service-oriented economy. However, China may find itself locked into place, at least for now, due to the hundreds of millions of rural migrants that need jobs.

Contrary to the conventional view, manufacturing in the U. S. has been growing in the past two decades despite the decline in manufacturing jobs. The latest data show that the United States is still the largest manufacturer in the world. In 2008, U.S. manufacturing output was $1.8 trillion, compared to $1.4 trillion in China[1]. This means that the United States is producing goods with higher value, such as airplanes and medical equipment.

In addition, most jobs the United States lost to China are low-skilled jobs. By outsourcing those low-skilled jobs to China, Americans have actually become more competitive in high-skilled jobs such as management, innovation, and marketing. The low-skilled jobs also serve China well as Chinese rural migrants have opportunities to move up in life and gain some skills.

The results are mutual beneficial. On one side of the globe, hundreds of millions of Chinese rural migrant workers earn more, have a higher standard of living, and their children have more training, which leads to more growth. On the other side of the globe, Western consumers are able to afford goods at lower prices and enjoy lower inflation.

[1] UN data. China’s data do not separate manufacturing from mining and utilities. So the actual Chinese manufacturing number should be even smaller.

Myths about China’s Exports

Helen Wang — Mon, 11 Jan 2010 18:31:49 +0000

News is out that China overtook Germany to become the largest exporter in 2009 (not surprisingly). Its share of world exports increased to almost 10 % – about the same slice as Japan’s exports in 1986. A recent Economist article predicts that if China continues its current pace, its share of the world’s exports will increase to about 25 percent in ten years.

As I dug deeper, however, I saw a different side of the story. China’s exports actually fell by 17 % in 2009. Its imports, fueled by a burgeoning middle class, have been stronger than exports, increasing by 27 percent while exports were falling. Contrary to the conventional view, exports are not the major driver of China’s economy – investments are. Net exports accounted for only 3 % of China’s GDP growth last year.

I expect China’s imports will continue to grow stronger than its exports in the coming years as a growing Chinese middle class will create stronger demand. In fact, the dynamics of US – China trade are already changing. While US exports to other major trading partners such as Canada and Mexico declined, its exports to China increased 13 % in 2009.

One might argue that if China hadn’t kept its currency artificially low, the U. S. could have exported more to China. According to U. S. Department of Treasure report on exchange rate, yuan has appreciated by 21 percent against dollar since July 2005. In 2009, China returned to a policy of maintaining largely stable yuan-dollar exchange rate. The appreciation of dollar in the past year has caused yuan to strengthen against other currencies.

I am all for fair trade and fair competition, and agree that China should allow its currency to appreciate and reflect the market price. But any attempt at protectionism to retaliate against China, such as the one suggested by Paul Krugman, is a recipe for disaster (iust because he won the Nobel Prize in economics doesn’t mean he is right). Trade is the only that can help us grow out of imbalance. Krugman went so far that he even blamed China for the US housing bubble. He might as well blame China for financing the Iraq war too.

Professor Joseph Stiglitz, the Nobel Prize-winning economist, explains in his book Making Globalization Work that the need for countries to hold reserves under the current global financial system causes money to flow uphill from poor countries to the rich. The United States receives most of the benefits of the reserve system, with all of those dollar reserves acting as low-cost loans to the US. Stiglitz indicates that the current global reserve system is self-defeating. Eventually, reserve currencies will depreciate, making them ill-suited for reserves. The reserve countries such as the United States are subject to the temptation to obtain low-cost loans and grow into debt, which causes significant instability in the world economy.

As addressed in my forthcoming book The Chinese Dream, re-balancing the global economy requires China and the U. S. to learn from each other: China to spend more and the U. S. to save more. China has made some efforts to increase domestic demand, such as incentives for people to purchase cars and consumer durable goods. The question Americans should ask is what they can do to stimulate their economy while increasing savings.

China’s Urban Billion

Helen Wang — Sun, 20 Apr 2008 20:49:00 +0000

A recent McKinsey Global Institute report “Preparing for China’s Urban Billion” says that the country’s unprecedented urbanization will continue over the next 20 years, and by 2030 China’s urban population will reach 1 billion. Here are some numbers that are indeed mind-bogging:

- By 2025, China will have 221 cities with more than one million inhabitants – compared with 35 in Europe today.

- China’ urban population will expand from 572 million in 2005 to 926 million in 2025. Over 350 million people will move from rural areas to the cities – more than the population of the Unite States.

- By 2025, China could have 15 super-cities with average populations of 25 million people. 41 percent of China’s higher income middle class will live in Beijing, Shanghai, Tianjin, Wuhan, Chongqing, Chengdu, Guangzhou and Shenzhen.

- China will build almost 40 billion square meters of floor space over the next 20 years, requiring construction of 50,000 new skyscrapers – the equivalent of ten New York Cities.

- Up to 170 cities could meet planning criteria for mass-transit systems by 2025, more than twice the current number in Europe. This could promise to be the greatest boom in mass-transit construction in history.

The report also says that China’s urban economy will generate 90 percent of its GDP by 2025. Urban China will become a dominant global market with its aggregate consumption almost twice, and disposable income over two times, those of Germany.

Businesses have not only an opportunity to leverage China’s booming middle class and a stratum of affluent consumers, but also to become major investors – in road and rail, public-transits, the energy-supply infrastructure, and energy efficiency technologies.

Change Across the Pacific to The Chinese Dream

adminhw — Mon, 01 Oct 2007 21:43:00 +0000

Effective today, Across the Pacific is changed to The Chinese Dream – a blog on the emerging middle class in China. It strives to be a one-stop shop for all the resources and discussions about the Chinese middle class. Your contributions are welcome!

Choking on Growth? – Another Side of Stories

Helen Wang — Sat, 29 Sep 2007 17:30:00 +0000

The New York Times ran a series of articles “Choking on Growth,” citing many severe environmental damages that accompanied China’s unparalleled growth.

One of the more startling problems is a shortage of water in northern China. Almost five-sixths of the wetlands in the North China Plain have dried up, and the area, where more than 200 million people reside, may be drained within 30 years.

The issues discussed in the article are true, but the tone is arrogant. Usually, there is another side of stories that is not told:

Five thousand years ago, one of the first emperors, Yu, fought to control the flood from Yellow River in the North China Plain. “????” (Honorable Yu Overhauls Water) is a story that can be cited by every child in China. Thousands of years later, Chinese are still fighting the same problem.

In 2002, China started a gigantic project called “????” (South-to-North Water Transfer Project). Chinese compare this project to the Hoover Dam in the United States, but on a much bigger scale. It’s a network of canals that brings water from flood zone of southern China to the North.

Another proposed solution is rapid urbanization, which is already under way. As radical as it may sound, scientists say “converting farmland into urban area would save enough water” because “wide spreading farming still uses more water than urban areas.”

As the article also points out, “Britain, the United States and Japan polluted their way to prosperity and worried about environmental damage only after their economies matured and their urban middle classes demanded blue skies and safe drinking waters.”

Indeed, Chinese look at Americans as their role models. They want to own homes, drive SUVs, and travel around the world. “Typically, industrial countries deal with green problems when they are rich,” said Ren Yong, a climate expert in Beijing. “We have to deal with them while we are still poor. There is no model for us to follow.” – With this attitude, there is hope for resolution.

A Wake-up Call: China Passing Us By

Helen Wang — Fri, 13 Jul 2007 13:57:00 +0000

An article by Knowledge @ Wharton cited David G. Marshall, a real estate guru and CEO of Amerimar Realty, about his experience of visiting China recently:

“In the last 10 years, not the last 22 years, Shanghai has built 2,000 high-rise buildings between 20 and 108 stories high — one more spectacular than the next. We stayed on the fifty-ninth floor of the JW Marriott, which was the headquarters for our Wharton Fellows Conference. You can look in four directions as far as the eye can see and you see nothing but spectacular high-rises. At night it looks like Las Vegas: All the buildings are lit up, they look like rocket ships going off. It looks like the Fourth of July. It is absolutely incredible what they have accomplished.

And we, on the other hand, are arguing over Sarbanes-Oxley, stem cell research, an archaic tax code, social security and health care — and I could go on and on. They’re all very important issues, but we are paralyzed by these issues and we are not growing. It is reminiscent to me of what probably took place with Great Britain not watching the United States — when the United States went flying by Great Britain. [China is] going to go flying by us and we’re going to wake up one day and say, “Oh my God, look what we missed.” That was my take away from China.”

I think Mr. Marshall’s observation and his sense of urgency are very valid. China is growing at a breathtaking speed. Things change in a matter of days. Yet people here are still rumbling about “human rights,” “Internet censorship,” “intellectual property,” when it comes to China. It’s not that these issues are not important, they are just so out of sync with the reality of China these days; or at minimum, they account for a small percentage of what’s going on there. As Mr. Marshall said: “Their goals are to get one billion, 300-500 million people educated, clothed, housed and fed. Intellectual property rights are not on their radar screen and [won't] be.”

I also think Mr. Marshall’s comments are brilliant: “We’re trying to play a basketball game with a basketball, and they’re trying to play a basketball game with a football. It’s a different set of rules. We better realize that it’s a different set of rules and that they’re not going to play by our set of rules.”

It is a wake-up call for Americans, as Marshall further pointed out: “I think that it’s very naïve for us to have our congressmen arguing about how we’re going to punish China for not letting the Yuan float; and how we’re going to punish China for intellectual property rights. When [China is] sitting there with $1.3 trillion of our Treasury bonds, you’re not going to punish anybody.” Perhaps America has been in dominance in the world for too long. I hope Americans won’t learn the British lessons the hard way.