China Prepares to Become the World’s Largest Economy
by George E. Curry
(LAST IN A SERIES)
SHANGHAI (NNPA) – In less than 15 years, according to projections by investment banking firm Goldman Sachs and the United States National Intelligence Council, China will overtake the United States as the world’s largest economy. And that dramatic shift has touched off a guessing game about what the dramatic shift will mean for the U.S. and the rest of the world.
“The US most likely will remain ‘first among equals’ among the other great powers in 2030 because of its preeminence across a range of power dimensions and legacies of its leadership role,” the National Intelligence Council report, titled, “Global Trends 2030: Alternative Worlds,” stated. “More important than just economic weight, the United States’ dominant role in international politics has derived from its preponderance across the board in both hard and soft power.
“Nevertheless, with the rapid rise of other countries, the ‘unipolar moment’ is over and Pax Americana – the era of American ascendance in international politics that began in 1945 – is fast winding down.”
The National Intelligence Council, which operates out of the Office of the Director of National Intelligence, is a collection of intelligence experts from government, academia, and the private sector. With 293 mentions of China in the global trends report, it is clear that the country’s rising influence is uppermost in the minds of many.
“The world of 2030 will be radically transformed from our world today,” the intelligence report observed. “By 2030, no country – whether the US, China, or some other large country – will be a hegemonic power. The empowerment of individuals and diffusion of power among states and from states to informal networks will have a dramatic impact, largely reversing the historic rise of the West since 1750, restoring Asia’s weight in the global economy, and ushering in a new era of ‘democratization’ at the international and domestic level.”
The only superpower not concerned about China’s rapid ascendancy is China.
“China does not aspire to run the world because it already believes itself to be the centre of the world, this being its natural role and position,” observed Martin Jacques, author of When China Rules the World. “And this attitude is likely to strengthen as China becomes a major global power. As a consequence, it may prove to be rather less overtly aggressive than the West has been, but that does not mean that it will be less assertive or less determined to impose its will or leave its imprint.”
China is already leaving its global imprint with its innovative way of innovating.
In an interview with McKinsey Quarterly, Kevin Wale, managing director of GM China, said: “What China does better than any place else in the world is to innovate by commercialization, as opposed to constant research and perfecting the theory, like the West. When the Chinese get an idea, they test it in the marketplace. They’re happy to do three to four rounds of commercialization to get an idea right, whereas in the West companies spend the same amount of time on research, testing, and validation before trying to take products to market.”
Foreigners are trying to capture a larger share of the Chinese market. A look at the auto industry illustrates why. In 2012, China sold 19.1 million vehicles, passing Europe after having already leaped ahead of the U.S. in 2009. Projections are that residents of China will soon purchase more automobiles than the U.S. and Europe combined.
GM and its Chinese joint partner, Shanghai Automotive Industry Corp., is No. 1 in the industry, capturing 14.3 percent of the market the last quarter. After selling Chevrolets and Buicks, GM is taking aim at the luxury market by introducing its Cadillac XTS cruiser.
Just as many U.S. companies are looking to expand in China, the reverse is also true.
The United States is expected to be the top destination for Chinese business investors in 2013, according to KPMG. Last year, there were 40 mergers and acquisitions deals valued at $11.1 billion in the U.S. involving Chinese companies, according to the international accounting firm.
In one transaction, the Dalian Wanda Group bought AMC Entertainment last year for $2.6 billion, becoming the world’s largest cinema owner. The transaction represents the largest buyout ever of a U.S. company by a Chinese firm. The company says it plans to spend another $10 billion in the U.S. over the next 10 years, mostly on hotels, retail and commercial property.
“The U.S. approach to its economic relations with China has two main elements: the United States seeks to fully integrate China into the global, rules-based economic and trading system and seeks to expand U.S. exporters’ and investors’ access to the Chinese market,” according to a State Department fact sheet.
According to the Office of the United States Trade Representative, U.S. goods and services trade with China totaled $539 billion in 2011. Exports totaled $129 billion and imports totaled $411 billion, a trade deficit of $282 billion.
The top U.S. exports to China, in order, were: machinery ($12.2 billion); grain, seed, fruit, and soybeans ($10.7 billion); electrical machinery ($10.1 billion); vehicles ($6.8 billion); and aircraft ($6.4 billion).
The largest U.S. import categories were: electrical machinery ($98.7 billion), machinery ($94.9 billion), toys and sports equipment ($22.6 billion), furniture and bedding ($20.5 billion) and footwear ($16.8 billion).
As the U.S. struggles to create more trade balance between the two superpowers, China has its sights set on Africa as the next major economic frontier.
While the U.S. clings to the stereotype of Africa as little more than a continent ravished by war, disease and famine, China has taken a progressive view of the continent. And it appears that its enlightenment will pay off for both China and Africa.
Of the 10-fastest growing regions in the world between 2001-2010, The Economist listed six in Africa: Angola, Nigeria, Ethiopia, Chad, Mozambique and Rwanda. Of the 10 regions projected to grow the fastest between 2011-2015, seven are in Africa: Ethiopia, Mozambique, Tanzania, Congo, Ghana, Zambia and Nigeria.
Many state-owned Chinese companies are heavily invested in Africa, building airports, hotels, highways, bridges and other infrastructure. Last July, then-President Hu Jintao announced that China would lend $20 billion to African governments for infrastructure and agricultural projects.
“Despite all the scare mongering, China’s motives for investing in Africa are actually quite pure,” Dambisa Moyo, an economist, wrote last year in the New York Times. “To satisfy China’s population and prevent a crisis of legitimacy for their rule, leaders in Beijing need to keep economic growth rates high and continue to bring hundreds of millions of people out of poverty. And to do so, China needs arable land, oil and minerals. Pursuing imperial or colonial ambitions with masses of impoverished people at home would be wholly irrational and out of sync with China’s current strategic thinking.”
Closer to home, there are a number of serious domestic issues that Chinese officials must address.
China’s one-child policy, for example, is producing an older population and an aging work force. China’s National Bureau of Statistics reported that in 2012, the number of working-age residents (15 to 59) decreased over the previous year by 3.45 percent to 937.27 million.
The family-planning policy, which some skirt by going to Hong Kong where the one-child policy is not in effect, has also created a gender imbalance. When the policy was first adopted in 1980, there was a birth-ratio of 103 to 107 Chinese boys for every 100 girls. Now, it’s 119 boys for every 100 girls.
Compounding the labor problem, much of the low-cost manufacturing is now shifting to Vietnam, Thailand and other countries in Asia, where prices are even cheaper.
Rather than fighting to keep those low-cost jobs – many of which are expected to be replaced by robots – China’s 12th 5-year plan (2011-2015) seeks to rebalance the economy by increasing domestic consumption. According to an analysis of the plan by KPMG, domestic consumption as a percentage of GDP fell to 36 percent in 2009, a decline from approximately 46 percent a decade earlier.
To increase consumer spending and lower citizens’ out-of-pocket expenses in China, the government plans to increase state-supported education, social security, public housing and health care while raising the minimum wage by 13 percent each year, changes that will also help narrow the wealth gap.
China has to deal with the paradox of having the world’s largest population and not having a sufficient workforce to serve both Chinese and multi-national companies.
The numbers can be deceiving. In 2005, for example, China produced 3.1 million college graduates; the United States graduated 1.3 million. Over that same period, Chinese engineering graduates exceeded 600,000. By comparison, the U.S. graduated 70,000.
“Despite this apparent vast supply, however, multinational companies are finding few graduates that have the necessary skills for service occupations…less than 10 percent of Chinese job candidates, on average, would be suitable for work in a foreign company in the nine occupations we studied: engineers, finance workers, accountants, quantitative analysts, generalists, life science researchers, doctors, nurses and support staff,” according to a McKinsey & Co. report titled, “Addressing China’s Looming Talent Shortage.”
As China grapples with its internal challenges, it is coming under increasing pressure to become a more open society.
“Against a backdrop of rapid socio-economic change and modernization, China continues to be an authoritarian one-party state that imposes sharp curbs on freedom of expression, association, and religion; openly rejects judicial independence and press freedom and arbitrarily restricts and suppresses human rights defenders and organizations, often through extra-judicial measures,” according to a 2012 report by Human Rights Watch.
The beating and killing of unarmed protesters in 1989 in Tiananmen Square and the subsequent suppression of student protesters and their supporters is still fresh in the minds of many westerners.
More recently, widespread concerns have been voiced about the alleged computer hacking of U.S. companies, including the New York Times, by Chinese military units – charges that Chinese officials strongly deny – have raised concerns about what kind of partner China will be to the U.S.
In unusually blunt language, Thomas E. Donilon, President Obama’s national security adviser, said in a speech Monday to the Asia Society in New York: “Increasingly, U.S. businesses are speaking out about their concerns about sophisticated, targeted theft of confidential business information and propriety technologies through cyber-intrusions on an unprecedented scale.”
Yan Jian, assistant director of the China Center for Comparative Politics and Economics, said as China and the U.S. try to work out conflicts, critics should take into account the brief period that China has moved toward a more open society.
“One lingering problem for me is how will you judge the Chinese government,” he said. “It can be done from a historical or international perspective. Historically, China has made great improvements in terms of the economy, politics and solidarity. If you compare China with the western, developed countries, we are still facing a lot of problems and challenges.”
One Chinese official said the outside criticism of China’s human rights violations has been helpful to insiders who want change.
“But don’t quote me on that,” he said quickly. “And if you quote me – don’t use my name,” he added, laughing.
Alexander Tzang, former deputy president of The Hong Kong Polytechnic University, is optimistic about China’s ability to grow and future relations between the U.S. and China.
“I think the more important thing is No.1, how to understand and accept that each party has got its own unique problems, which we may not see,” he said. “The second is to have more empathy, to give people more time to solve their problems. And the third, I think is more important, particularly in today’s Sino-U.S. relationship is trying to deal with less suspicion. The politicians are horrible – they create suspicion.”
Everyone is studying Xi Jinping, China’s new political leader, for signs of how he might try to eliminate that suspicion. Xi has alternated between advocating for a return to Leninist discipline as a way of avoiding the mistakes of the former Soviet Union and the need for a more open society through enforcement of the constitution.
Jiang Haishan, vice president of the China Executive Leadership Academy Pudong in Shanghai, said: “In the United States, international relations is always a zero sum game – I win, you lose. But in China, we both can win by cooperating and by working together. We have to communicate that. China has to communicate its message that China will be a friendly but responsible, accountable country even when China has as much as the United States.”
(This 4-part series is the outgrowth of a week-long African American Media Leaders Mission to China sponsored by the China-United States Exchange Foundation, a non-profit organization whose goal is to foster a better understanding between the people of China and the United States. Neither the foundation nor government officials in China had any imput in these stories or saw them prior to publication. The 7-member U.S. media delegation was led by Cloves Campbell, Jr., publisher of the Arizona Informant and chairman of the National Newspaper Publishers Association. The trip included visits to Beijing, Xi’an and Shanghai.)