China,
Inc. by Ted C. Fishman
--300
M rural Chinese will move to cities in the next 15 years. China must build
urban infrastructure equivalent to Houston’s every month in order
to absorb them.
-- General Motors
expects the Chinese automobile market to be bigger than the U.S. market
by 2025. Some 74 M Chinese families can now afford to buy cars.
--China has more
speakers of English as a second language than America has native English
speakers.
--China has more
than 300 biotech firms that operate unhindered by animal rights lobbies,
religious groups, or ethical standards boards.
--On average, American
companies make a 45% return on their China operations.
--There are 220 M
“surplus workers” in China’s central and western regions.
The number of people working in the United States is about 140 M.
--Apparel workers
in the US make $9.56n hour. In El Salvador, apparel workers make $1.65.
In China they make between 68 and 88 cents.
--One in ten American
jobs is at risk of being “offshore.”
--There are 186 MBA
programs in China.
--China has 320 M
people under the age of 14, more than the entire population of the US
--In 2003, China’s
GDP was $1.4 trillion – 7th largest in the world (US is #1 at
$10.1 trillion) - Numbers for China may be low
--economic districts
may understate their growth so that government resources do not go elsewhere;numbers
only include legal economy
-- China ties the
value of the yuan with the US dollar; other world currencies go up or
down depending on market conditions; $1 US buys $4.70 worth of Chinese
goods
--CIA calculates
that the Chinese GDP should be closer to $6.6 trillion or 2/3 the size
of the US economy
-- US – 1982-2002,
GDP growth averaged 3.3%
--For US politicians,
above 4% growth is blockbuster; above 2% is comfortable growth; anything
less that 2% growth is political poison
-- China expects
growth above 7% per year; must create enough jobs to busy those regularly
entering the job market
--China makes 1/20
of everything produced in the world – however, can dictate wages
and prices
--In 2003, the Chinese
sold the US $152 B more in goods than they bought
-- Other Asian and
Latin American countries are losing out to Chinese producers
--China is also a
consumer
--China is now the
largest consumer of factory machinery purchased from Japan and Germany
--China buys raw
materials for other countries -
7% of the world’s oil;
25% of the worlds aluminum and steel; 1/3 of the world’s iron
ore and coal; 40% of the world’s cement
-- Foreign investment
- half a trillion dollars of foreign investment has been spent in China
since 1978; more than half of China’s trade is controlled by foreign
firms – many send parts into China to be assembled into exports
-- Shanghai has the:
world’s tallest building; world’s largest shipyard; world’s
tallest ferris wheel (656 feet tall); fastest train (magnetic levitation
train)
-- Population - China’s
official population count is 1.3 B; actual estimates 1.5 B. Does not
include missing children (not registered because of China’s birth
policy), farmers turned workers (who wander the country without official
permission, or who have no permanent address).
-- In the first half
of 2004, according to official counts, industrial accidents killed around
350 people a day
-- Communism - In 1949, Mao ended a system of property ownership that
reached back for centuries. Mao believed that China’s socialist
revolution should originate with the peasantry rather than with urban
workers, as Marxist theory holds. The People’s Republic was established
in October 1949, at which time the Communist Party had 4.5 million members,
nine out of ten from peasant backgrounds. Its first years were marked
by a massive reconstruction of China, and the country’s new prosperity
and stability contrasted with the tumult and hardship of the decades
before. China’s leadership began the process of land reform in
1950 with the Agrarian Reform Law. The law did away with the rights
of individuals to own land in China and then granted the use of plots
to the tenant farmers. The reform made good on a long-held pledge by
the Communists to put land in the hands of the peasants who worked it.
It also did the opposite. In taking the land away from the landlords
they hated, the Communists also took land away from millions of peasant
farmers who owned their own small plots. Before all land was forcibly
transferred to the Communist state, 60% of China’s rural population,
frequently starkly poor families, held land, small as the plots might
have been. (41-42)
(GO TO ANOTHER SOURCE
TO RESEARCH "HOW MAO GAINED POWER" IN CHINA.)
--Japan – Gen.
MacArthur required tenant farmers to purchase their plots (on extremely
easy terms). It worked miracles: putting land that during the war had
forcible been cultivated according to the demands of the Japanese military
into the hands of farmers pumped up production. Japanese economic progress
continued at a terrific pace, the Chinese lost momentum by enacting
even more radical reforms. (42)
Great Leap Forward
included:
-"Wipe out the
Four Pests" - (and an explanation)
- Backyard furnaces
- explain
- Destruction of
historic items because China was looking forward not backward.
- Arrest and execution
of dissenters
- 19 million workers
needed for industries in the cities
(Do not put in your
essay the effects of the Great Leap Forward, such as, the Hukuo system.)
--In the mid-1950s,
China turned from individual land use to Stalin’s Soviet model
of collectivization. At first, farmers were compelled to help one another
on each other’s plots. All land and all property, including animals
and farm tools, were collectivized. The new communes also struck at
China’s most basic social institution, the family. The most extreme
of them moved people out of their homes into big dormitories where families
could be separated. Land was worked in common by groups, typically a
collection of hundreds of families. One motivation for the change was
practical. Cropland would not longer be divided into minuscule plots,
each with a different mix of plants. Bigger, unified tracts, the government
reasoned, could be farmed more efficiently. Modern farm equipment could
also be employed, insofar as such technology was available. Labor could
also be freed to build dams and irrigation systems. One of Mao’s
core doctrines was that the Chinese peasants and workers needed to be
molded into a workforce that could easily be mobilized, not in the sense
that they could be moved around geographically but for ideological campaigns
and for the shifting, politically informed economic policies of the
Party. China’s rural labor was kept to the land where it could
play the part of a “reserve army” to be called into action
when needed by the Party for industrialization projects. (43)
--When the Communists
took control of all private property, they also set about eliminating
the myriad small businesses that served everyday commerce in the country.
Families with small stores lost them as the state assumed the role of
universal shopkeeper. That forced families back onto the land full-time,
even if they had already made a complete break from it. (44)
--Briefly, from 1959
to 1960, while the extravagant industrialization goals adjoined to the
Great Leap Forward were pushed by the Party, farmers were allowed to
leave the country and join urban firms. In that short window, China
experienced what had been predicted: farmers stormed into the cities.
(Just as they had been doing in much of the rest of the world following
WWII.) Nineteen million were recruited to cities; 50 million showed
up. China, however, did not prosper. It starved. Tens of millions more
farmers poured into cities during the famine. Reaction came swiftly.
The Party, moved to protect its urban workers, deported most rural migrants
back to the countryside, where the government meant to keep them. By
1960, the Communist had all but sealed most of the country’s people
off, not just from the world, but from China’s own cities. (44)
The hukou system was designed to prevent rural-to-urban migration. Family
booklets served as internal passports. “Every household’s
booklet registered the family origin, class affiliation, personal identity,
birth date, and occupation of all its members.” Those with rural
identities who traveled to the city without proper permissions, which
were hard to come by, would be detained, then deported back to their
farms. A household’s booklet was also required to get food from
government shops. Those who showed up at shops outside the region were
refused. The effect was that the state destined children of farmers
to remain on the farm. Only the army, a political post, or occasional
temporary work in a nearby city offered any road out. (45-46)
-- Collectives were
required to meet production goals, and their output was then delivered
to the state to satisfy the needs of the cities. Farmers who grew the
country’s food were, therefore, the first to go hungry. That is
why the famine of 1959 killed tens of millions of people in the countryside
while city dwellers survived. (46)
--The usual explanation
of the low productivity of Communism blames the lack of incentives for
farmers. On China’s collectives, the standard complaint goes,
growers, dulled by state guarantees that fed them no more and no less
than their ration books allowed, had no reason to work harder than absolutely
necessary. Those who thought their work could be sloughed off on others
would take it easy. But this analysis neglects the enforced deprivation
of farmers kept on the land. They were turned into slaves for China’s
cities. (46)
--The hunger that
continued to plague large swaths of the Chinese countryside throughout
the 1960s and 1970s stirred the clandestine efforts of one group of
farmers that have since been pushed into popular mythology by post-Mao
reformers. The group came from a hardscrabble village called Xiaogang
in China’s poor Anhui Province. In the 1970s, families in Xiaogang
lived in extreme deprivation. The farmers, with annual incomes around
twenty yuan a year, were among the poorest people on earth. (At today’s
exchange rate, twenty yuan equals $2.50.) Many families sent out members
to beg. The official story of how they lifted themselves up is known
to nearly all Chinese. It goes like this: Eighteen farmers desperate
for a better way to feed their families agreed to divvy up land they
farmed collectively and assign discrete plots to each family.
--Collectives at
the time were obliged to pay a “grain tax,” an allotment
that went into government distribution channels. The farmers agreed
that they would still pay their grain tax, but that once their obligations
were met, they could sell or barter whatever surplus they could coax
from the land. The proceeds would then be theirs to keep. Such a secret
arrangement was illegal, and the farmers knew their pact could result
in prison, or perhaps death. The eighteen men courageously signed the
compact with their fingerprints in December 1978. It stated that if
any one of the signatories was apprehended and punished, the others
would support his family left behind. The effects were nearly immediate,
achieving in months what years of ideology and central planning could
not. The yields from the land climbed dramatically. This was not the
only event. Many other farmers already were paying bribes to buy themselves
the freedom to sell crops. However, the end of communal farming met
strong resistance no matter what the official record shows. Deng Xiaoping,
as China’s recent leader, allowed the illegal experiments to continue.
The scheme offered a powerful, no-cost way for a strapped government,
itself struggling through a difficult situation, to lift its people.
The system became known as the “Household Responsibility System.”
The market economy in China was, in fact, kick-started by farmers. The
farmers were the ones that had the least to lose and therefore the incentives
to take the risks that utter poverty and disenfranchisement offer. China’s
progress owes its success to a government that grudgingly acknowledged
that it could not get in the way of a people determined and resourceful
enough to undermine the old radical regime. (47-48)
--Once farmers began
to make some money on their own, they looked for ways to make money
by setting up businesses. They took the form of collectives and cooperatives
owned not by the central government but by members of local communities.
Or they are owned as private investments by local governments. These
“township and village enterprises,” or TVEs, fill the gray
area between public and private sectors and now make up a third of the
economy. (49)
One way to begin to understand China’s impact on the world economy
that is to unfold over the next few decades is to consider how far the
Chinese have come without the property rights and laws often regarded
as some of the most fundamental building blocks for economic development.
(50)
--Economic opportunity
in China, largely driven by geography, has grown so lopsided that China
now ranks among the most unequal of nations. On average, rural incomes
are but a third of those in the city. With the advent of reform, localities
now must support their own social services such as schools. In 1998,
the National People’s Congress cut the Ministry of Education in
half, leaving the rural education in a freefall. In China’s poorest
provinces, the odds of a child getting even basic schooling can be zero.
This is a strong incentive to leave the countryside. While rural incomes
have climbed 90% since the mid-1990s, locals pay four to five times
the tax they once did. Farmers make a fraction of what urban residents
do, but the government requires them to shoulder disproportionately
higher taxes than urban dwellers. The government, responding to literature
and its genuine fear that the imbalance between China’s prosperous
zones and the countryside could threaten the country’s stability
and progress, spent much of 2004 declaring measures aimed at redressing
the farmers complaints. These included tax relief, subsidies, and a
major effort to encourage industries to locate to China’s poorer
regions. (55, 57)
--But rural reforms,
no matter how ambitious, can never turn China’s small farms into
the growth engine of China’s industry. Conditions in rural China
are often appalling, and the government’s chief strategy to end
rural poverty still focuses on getting people off the farm. (57-58)
--The difficulty
of starting a business in China has led to creative financing. For foreigners
doing business in China, or competing against it, one of the most maddening
things is the fluid view that Chinese businesses have of agreements,
and their often blatant disregard for legality.
-- In the first nine
months of the year (2004), China’s 9-plus percent rate of growth
was joined by a need for an additional 1 million barrels of oil every
day. During that time, more than fourteen thousand new cars were also
added to China’s roads daily. (117)
-- Cars and China’s
electricity-hungry manufacturers live under the same sword. When the
big coal plants cannot fuel industries’ needs, smaller petroleum-burning
plants fill the gap. (117-118)
-- Cars in China’s
cities have also become the country’s chief source of pollution.
China’s cars pollute worse than elsewhere. The U.S. State Department
will not allow diplomats with asthmatic family members to work in many
Chinese cities. China’s central government promises to enforce
stricter pollution standards in the future, but that promise will rely
on the willingness of local governments to play policeman, hardly a
sure thing. (118)
-- Need for roads
According to the model for public works nearly everywhere in the world,
overcrowded roads will stir governments to think about where new roads
could be built to relieve traffic. In China it is not so simple. Nearly
every inch of the new expressways in eastern China is a business owned
by the government—often a provincial or local government—that
is ultimately leased out to a private-sector company as a toll road
and run for profit. In between those who initially approve a highway
and those who run tollbooths is a web of officials, planners, developers,
financiers, engineering firms, construction companies of all kinds,
and unlike a public utility, in which the government in charge provides
a monopoly to a service provider, which in turn feed money—in
the United States, anyway—back to the government in the form of
taxes. Where they differ is that Chinese expressways are also monopolies
in the way that Standard Oil was once a monopoly. Its interest holders
have strong incentives to make sure their roads have no real competition.
A parallel road network would slash the tolls. But competition does
come, nonetheless. Not directly, but in the form of other roads built
by other regions that want their own modern and competitive transportation
infrastructure, and their own profits. Zhejiang Province pioneered the
system, motivated by the same desperation that caused citizens of the
province to scratch their way so successfully into the private sector.
With no money from the central government to build the roads that its
budding businesses needed, the provincial government struck on the idea
to build roads with money raised on the Hong Kong Stock Exchange. Each
road, in essence, would be its own company, and in charge of paying
its own way. The companies that took control would be run as private
enterprises, but the province had a large stake in them. The plan worked,
and Zhejiang’s road became hot issues for world investors—and
not just among Chinese investors, but also among the world’s richest
investment funds and large institutions. Over the years, Zhejiang’s
highway-building program has proved so successful that highways in the
province have never cost its citizens a cent of public money. On the
contrary, Zhejiang has earned $30 billion off its roads, enough money
to finance other essential social programs, such as water reclamation
and schools, both of which are far above the Chinese norm. This again
is the province that once received virtually no money from the government.
The model first used for highways is now used for all sorts of public
service. Only 15% of the Chinese have safe drinking water that comes
out of a tap. Ideally the schemes bring to China efficient markets for
services, in which people pay for what they use. That could lead to
a society more willing to conserve. In the US, by contrast, where the
use of highways is mostly free, and water often generously subsidized,
Americans to grossly overuse both. Countries that rely on tax money
and popular consent to build their roads may not be able to match what
the Chinese are rushing to build. In the US, more and better highways
come only at the price of higher taxes. (120)
-- Communism and
Reformed Communism “Chairman Mao Sells Soup”
Before reforms, selling worms for profit in a pet market would have
been an utter impossibility. Communist ideology on nature, work, and
class all would have conspired against it. Nature was to be conquered.
Workers were to serve the state. Business that promoted a leisure class
endangered the revolution. (125)
The Communists under Mao gave themselves a mandate to radically refashion
China’s earth. They used the will—stoked by ideological
campaigns—and the labor of the people to do it. The Party’s
penchant for giant public works projects is well known. Less well known
is how savagely the Chinese people were set against the natural world.
One campaign in the late 1950s and early 1960s, called Wipe Out the
Four Pests, directed the Chinese to wipe out all rats, flies, mosquitoes,
and sparrows. Mao drafted the whole country to the campaign, including
a national army of young grade-schoolers. China’s population of
sparrows nearly disappeared. Other birds too. And so did nature’s
first line of defense against locusts and other field pests. (125)
The campaign was one of several that led in 1960 to China’s great
famine, and to the agricultural collapse that caused as many as 30 million
deaths, perhaps the largest man-made disaster in history. To deal with
the insect infestation that followed, an army of exterminators with
chemical pesticides poisoned bugs and the land. The drive to rid Chinese
life of birds and bugs was so ferocious that traditional Chinese artists
who’d spent lifetimes painting birds and bugs in their work felt
too frightened to create or show.(125)
Pet ownership too was linked with the ruling class and their “decadent
lifestyles.” Chinese official ideology demonized people with servants,
free time, and pets and justified violence against them. Today, catering
to people’s free times is a good a business as any other. Official
anti-pet sentiments are still strong, but not strong enough to block
the pet trade or to close markets, which provide a living to farm families
who can now ply the trade and no longer have to stake their livelihoods
solely on what grains they can grow or on the government’s schemes.
(125-126)
During the Great Leap Forward in the late 1950s, Chinese farmers adapted
to Mao’s goal for China to become a top steel producer, another
national project that contributed to the great famine. They build “backyard
furnaces” everywhere and gathered their families’ iron tool
and kitchenware to be melted in their homemade factories. Their newly
forged steel was supposed to be turned over to the state to meet Mao’s
goal of topping the steel production of Great Britain, still a potent
symbol of colonial domination and capitalist manufacturing. The result:
what little wealth rural families had went up in smoke. The steel they
made in their backyard furnaces was mostly worthless globs of metal,
too unsound even for simple tools. After years of mismanaged industry
and farm policies, the mass of China’s rural population had moved
backward. The Chinese people were poorer in 1979 than they had been
in 1950, and the farmers desperate. (126)
In China’s poverty diet, ingredients were meager and monotonous.
During the thirty years after 1949, the traditionally elevated role
of food was all but extinguished. According to the dictates of the state,
Chinese farmers remained focused on grains, the crops by which the Communist
Party measured its success. Vegetables were often sparse; Chinese in
the northern grain belt often had only cabbages, potatoes, and turnips.
Food was strictly rationed. For laborers, food was little more than
fuel and came by the way of their workplace, doled out with chits to
use at government-run depots. No more. One of the great joys of China’s
new urbanization is city food life. In China [today], the varieties
of food may be as great as the rest of the world put together. This
is an extraordinary change. So is the country’s renewed interest
in it. Food, together with family, has returned to the center of Chinese
social and cultural life. (126-127)
-- Importing Food
“Through the Looking Glass”
Two other trends are making the Chinese more active food buyers. Migration
is one. As the Chinese move off their farms, they must buy food grown
by someone else. Nothing would make the American farm sector happier
than the fulfillment of China’s urbanization goals, which will
convert hundreds of millions of families that live off their land into
grocery buyers. (140)
The other trend is the loss of arable land in China due to the sprawl
of urban centers. Nearly 17 million acres of farmland have disappeared
since the mid-1990s. The Chinese have even resorted to leasing giant
swaths of land in neighboring Kazakhstan, Laos, and smaller plots in
faraway Cuba to help insure it can control its own food supplies.
Much of that food will come from Illinois. In 2003, the state’s
73,000 farms exported more feed grain and products than those of any
other state, and Illinois was the second-largest agricultural exporting
state overall, with $3.3 billion in farm products sent overseas.
American farms average 469 acres in size, while Chinese farms average
only 1.2 acres. One American farmers working with a $200,000 combine
can do the work of 20,000 Chinese farmers working on their government-allotted
plots.
Chinese trade barriers come and go without warning. In 2002, American
farmers were so uncertain about the Chinese stance on the fitness of
American soybeans that they found other markets, avoiding China almost
entirely. *Chinese manufacturers have resorted to counterfeiting soy
products. The government raided factories making fake soy sauce out
of, of all things, discarded human hair, which was apparently being
distilled in vats for amino acids much like those that give soy its
essential qualities. Hydrochloric acid was added to make the stuff,
um digestible. (143)
In the past, foreign sellers would gladly have picked up sales to make
up for the soybeans and meal the US didn’t have in inventory.
But in the 2003-4 growing season, South American crops came up short
too. Compounding the lack of supply was that Latin American growers
simply do not have the transportation infrastructure to get their products
where they need to go in a timely fashion. Demand for gain and beans
is so overwhelming that at times 6,000 Brazilian trucks carrying grain
for export approach port only to stall in 60 mile long traffic jams
that take a month to move through. (143)
The growing Chinese demand makes ethanol [from corn] an increasingly
attractive alternative [to petroleum]. And, indeed, ethanol prices climbed
forty cents a gallon in the spring of 2004, yanking up US corn prices
as a result, a boon to Pekin’s [Illinois’} farmers and industry.
(144)
In the long run, which is to say when historical ironies become most
apparent, American farmers may actually benefit from the flight of American
manufacturing to China. Not only has agricultural demand from China
risen, but the powerful global effects of the Chinese economy may have
made it easier for the American farmer to finance his business. That
China has an overwhelming trade surplus with the US drives down the
interest rates that American banks charge borrowers. (145)
-- Manufacturing
– “Nuts and Bolts”
It’s not just the farmers of Pekin [Illinois} who think about
China, of course. There are also the workers and managers of Excel Foundry
and Machine. Excel makes parts for machinery used in heavy-construction
and mining operations. “Any of the parts we make that can easily
be duplicated by metal shops in China,” Parsons [owner of Excel]
says, “are handed off to an offshore supplier.” Excel can
make more money on these commodity parts if someone else produces them,
then selling them at a bigger margin. Parsons is willing to play middleman
for some parts so long as the strategy helps Excel retain its spot as
manufacturer of higher-value parts. Under his stewardship, Excel has
already relocated 20% of the company’s production capacity to
China. Sending production of commodity parts offshore also frees up
the talent and machinery in Excel’s own plant. Excel can then
make products that few, if any, other companies can match. That’s
where the fattest margins are. (146-147)
For now, however, Parsons’s biggest problem is not how to make
up for products poached by his competition; it is how to manage his
company’s recent growth. Excel’s mining customers are running
their machines all out because China has raised worldwide demand for
nearly everything that is dug or drilled out of the earth. (*Australia
may be the one country that is more euphoric about China’s growth
than China itself, the reason is that China is signing up Australia
to huge multiyear resource deals that no other country can match. (151)
For all the talk in the US and other industrialized countries about
the loss of manufacturing jobs, open positions can be tough to fill.
Workers with factory experience simply are not out in the market looking,
and new high school and college graduates to not see manufacturing,
especially basic manufacturing, as a good career bet. Meanwhile, Excel’s
competitors in China have the opposite problem. They must sift through
a surplus of willing workers, including an oversupply of graduates from
universities and technical schools who enter the workforce with superb
skills. (148)
-- Mexican Immigration
to US – “When Mexican Factories Go to China, Mexicans Come
to America”
According to the Mexican government, the country lost 218,000 manufacturing
jobs when 500 of the 3,700 export-only maquiladoras closed between 2001
and 2003. But their closings only tell part of the story. Nearly 200,000
more jobs were shed from factories that are still running. Frequently,
pay for the jobs that remained shrank as well. The Mexican Ministry
of Labor says that the country’s workers now earn less than they
did in 1993. While Mexico’s manufacturing fell into a slump, China’s
roared. U.S. Department of Commerce data show that from 2002 through
2003, Mexico lost market share in 13 of its top 20 export industries,
nearly always to China. Mexican maquiladora workers, on average, earn
4 times what Chinese workers do, but they earn only about 1/7 of what
American factory workers do. (149-150)
-- Wal-Mart –
“Lower Prices, Year After Year!”
Wal-Mart is the world’s largest company. Wal-Mart’s 2003
annual sales of $260 billion matched the gross domestic product of Switzerland.
Wal-Mart’s workforce of 1.4 million is the world’s largest
for a private company. The company plans to add 1000 new stores to its
current 3000 will swell its rolls by 800,000 retail workers. Between
the company’s high rate of employee turnover and the new store
openings, Wal-Mart must find more than half a million new workers in
the US every year. (153-154)
In 1995, only 6% of the stores’ merchandise came from abroad.
Estimates of how much of Wal-Mart’s merchandise comes from abroad
today range from 50 to 85 percent. In 2003, Wal-Mart purchased $15 billion
worth of goods from Chinese suppliers. A whopping portion of between
10 and 13 percent of everything China has sent to the US winds up on
Wal-Mart’s shelves. Wal-Mart’s trade with and in China accounts
for 1.5 percent of that country’s gross domestic product. (154)
The company has developed what is almost certainly the world’s
broadest and most technologically advanced systems for finding low-cost
goods and delivering them to its stores in the most efficient manner
possible. Wal-Mart, for instance, has the world’s largest private
network of satellites, deployed to keep tabs on merchandise as it works
its way around the world. It is currently implementing a system called
Radio Frequency Identification, of RFID, which will track every single
carton of goods sold to Wal-Mart from its creation on the shop floor
until the box is carted empty out of a Wal-Mart store. (155)
The company’s intelligence about its own markets is so complete
that it knows full well how much it costs its suppliers to manufacture
for it. That forces suppliers to produce at ever-lower prices. By selling
portable DVD players with seven-inch LCD screen from China for less
than $200, for instance, Wal-Mart recently helped to cut the price of
these trendy devices in half. When companies do business with Wal-Mart,
they meet a tough negotiator that demands that products be delivered
exactly on time and at the negotiated price. They must also expect Wal-Mart’s
push to drive prices down over time. Rather than letting manufacturers
raise their prices as time goes on, Wal-Mart expects yearly reductions.
Cutthroat competition overseas forces Chinese factories to squeeze their
low-paid workers by adding to their work week or forcing overtime. (156-157)
-- Germany –
“Why Germany Must Look East to Find Itself”
While German toy and craft makers deal with the onslaught of competitive
Chinese merchandise, for the German economy as a whole China’s
economic rise has been a mixed blessing. Unlike the trade between the
US and China, which gets more stunningly lopsided every year in favor
of the Chinese, Germany’s trade with China stays roughly in balance,
often tipping in favor of the Germans. A key factor is that the Germans
make the machines that fill the tens of thousands of Chinese factories
that have sprung up in the last decade. Also, in China, German companies
succeed by skirting the weight of high labor costs and an expensive
social service system at home. Volkswagen was the first foreign carmaker
to manufacture in China. (164-165)
What Germans face is a world everywhere forced by China to work smarter
and harder, to make more efficient use of its labor and capital. German
workers have been forced to work longer hours and take shorter vacations
to help Germany’s domestic industries better compete. Siemans
threatened to move thousands of jobs out of Germany unless its workers
put in longer hours at no extra cost to the company and successfully
forced concessions. That hard-nosed approach emboldened Germany’s
smaller companies to make similar demands and to move production abroad.
(167)
--“The China
Price”
Over much of the business world, the term China price has since become
interchangeable with lowest price possible. The China price is part
of the new conventional wisdom that companies can move nearly any kind
of work to China and find huge savings. It holds that any job transferred
there will be done cheaper, and possibly better. By the time objects
get to their end user, corporate purchasers have scoured the globe for
the best parts and the best prices. This has a profound impact on people.
(177)
In 2000, the number of long-term unemployed in manufacturing in the
US totaled 102,311. In 2003, it reached 367,323. However, long-term
unemployment does not include the nearly 2.7 million Americans who have
given up looking for work or the 4.5 million who have low paid part-time
jobs but who want better ones. North Carolina, the state whose manufacturing
sector has suffered more than all others, lost 160,000 factory jobs,
or one in 5. (178-!79)
The disappearance of manufacturing jobs is a real blow to regions that
rely heavily on their local factories. Factory jobs tend to pay well
above the service jobs that are rising in number, especially when costly
healthcare and retirement benefits are added in. (180-181)
-- US Manufacturing
future – “It Doesn’t Look Pretty”
The gloomy employment statistics do not reflect the overall health of
American manufacturing. Today’s US manufacturing sector is as
large as the entire Chinese economy in dollar terms. And while manufacturing
jobs have disappeared, the sheer volume of things that American manufacturers
produce has skyrocketed. The key to the growth in output is the rise
in manufacturing productivity, the term that describes the ratio between
the value of the factors that go into making something and the value
of the goods that result. Better machines, software, and advanced management
techniques, for instance, now mean that US companies on average produce
far more per worker than they did a quarter of a century ago when manufacturing
employment was high. The result is that prices of manufactured goods
have fallen (6%) while prices in the rest of the economy have raced
ahead (18%). (182-183)
-- Auto Manufacturing
- “How the Race to the Bottom is a Race to the Top”
Over 120 companies make passenger cars in China. Among these many car
manufacturers are a small number of larger, thriving ones that in many
cases were started with the pooled resources of local governments. These
wholly domestic firms play a role in how much a Chinese economy car
built for export will eventually cost and what it will look like. (204)
The Wanfeng automotive factory is a good place to see these gathering
forces of China’s automotive might. Morning there begins with
a neat line of employees doing calisthenics to martial music over a
PA system. The blue-uniformed workers, nearly all of them young men,
make for a clean-cut, well-pressed company line. The Japanese introduced
courtyard exercises and company songs to the world back in the 1970s
when that nation seemed to have the world’s best industrial jobs.
Today, Japan is stumbling out of malaise, and its dwindling pool of
young laborers lack the compulsion to work like hell. The Chinese manufacturer,
however, goes one better. Its employees regularly have their spirits
revved at company boot camps run by the People’s Liberation Army
drillmasters, who inculcate the twin virtues of patriotism and hard
work. (204-205)
Wanfeng’s factory itself is a bare-bones machine. Most tellingly,
not a single robot is in sight. Instead, hundreds of young low-paid
men newly turned out from China’s burgeoning technical schools
man the assembly lines with little more than large electric drills,
wrenches, and rubber mallets. This is why Wanfeng can sell its handmade
luxury Jeep Tribute in the Middle East for $8,000 to $10,000. (205)
China bought just over 2 million new cars in 2003,while the mature US
market has long been stable at roughly 17 million cars a year. Even
with periodic sputters, China’s long-term growth will be huge.
China is on track to surpass Germany as the number three auto producer
before 2010, to pass Japan by 2015, and then be just 4 million sales
a year shy of the US market, which it will pass in due course too. (206)
Overall, the automobile business accounts for more than a trillion dollars,
or about 1/10 of America’s GDP. (208)
Last year VW exported between 60,000 and 70,000 cars made in China to
Australia. Others are heading toward the Middle East. Honda, the company
that makes the most coveted cars in China right now, has convinced the
Chinese government to let it build a wholly owned factory—the
first of its kind for a foreign company—in China by promising
the government that every car made in the plant will be exported. Toyota
recently revealed that engines made in its China plant will end up in
cars destined for the US market. So, ironically, high demand in China
is pushing prices down globally. (212)
-- Cell Phones –
“China Calling”
Every month, 5 million new subscribers sign up for mobile phone service
in China. The country’s 300 million mobile phone users make China
by far the largest such market in the world (and hundreds of millions
more accounts are coming). (214)
This mobile phone market in China was invented by Motorola. Motorola’s
company archives show that Galvin (former CEO) and his team knew that
eventually the transfer of technology to China would sow formidable
Chinese competitors. Nevertheless, Motorola decided its best strategy
was to get into China early. Before long, Motorola’s reports to
China’s political leaders—infused with the same missionary
vocabulary on industrial quality that had made the company a model for
American manufacturers—were soon parroted by China’s leadership.
Galvin also brought Motorola’s best technology to China. The proof
today is in the size and efficacy of the country’s mobile communications
network: calls get through to phones in high-rises, subway cars, and
distant hamlets—connections that would stymie mobile phones in
the US. At first the foreigners can make things at much lower cost than
the Chinese. But as local companies come along to supply the multinational
companies, the supply network expands very fast. Then local Chinese
manufacturers can start to source their parts in China and drive the
prices of their products far lower than the multinationals. (215)
One of Motorola’s most important suppliers is the battery maker
BYD Company Ltd., based in Shenzhen, near Hong Kong. BYD, like Wanfeng,
stripped robots and other machines out of the manufacturing process
and replaced them with an army of workers. By paying for Chinese salaries,
and not for million-dollar American, German, or Japanese machines, BYD
slashed the price of batteries. Initially the company could not meet
Motorola’s quality demands, but the American company sent a team
of engineers to work with the upstarts, and six months later BYD earned
a Six Sigma certification, a universally recognized badge of quality
(which Motorola itself invented). That in China, machines can be replaced
by people for huge cost savings and without sacrifice in quality changed
the competitive landscape of the global marketplace. When Motorola and
Nokia were pressed to lower their prices by Chinese competitors, they
turned to BYD. One of the greatest challenges facing Motorola and other
global manufacturers is that Chinese suppliers are getting too good.
(215-216)
--“325,000
New Engineers Each Year”
How does any company cut costs and raise quality simultaneously? It
hires the smartest, most energetic people it can find in China. “Look,
China is the most exciting place in the world right now to be a manufacturer,”
say Mark Wall, president of the greater China region for GE Plastics.
His operation sells the plastic pellets used to make everything from
DVDs to building materials. Within two years GE will sell $1 billion
in advanced materials, including plastics, in China. Wall, who came
to China from GE Plastics, Brazil, describes a country in love with
manufacturing like no other, where engineers come in excited and readily
work long days. Where university students clamor to get into engineering
and applied sciences. (216-217)
GE, meanwhile, has every plan to capitalize on the local zeal for manufacturing.
It recently opened a giant industrial research center in Shanghai, and
by next year it will employ 1200 people in its Chinese labs. The company
has also set up scholarship programs at leading Chinese technical universities.
(217)
GE will have no shortage of good candidates. The government is pouring
resources into creating the world’s largest army of industrialists.
China has 17 million university and advanced vocational students (up
more than threefold in five years), the majority of whom are in science
and engineering. China will produce 325,000 engineers this year [2005].
That’s five times as many as in the US, where the number of engineering
graduates has been declining since the early 1980s. (217)
The ability of American industry to stay ahead of its international
competition rests on the national gifts and resources that the US devotes
to innovation. Certainly, the confidence of big American companies like
Motorola, General Motors, and Intel, all of which have billion-dollar-plus
stakes in China, is based on the brainpower they have at home. The research
gap between the US and China remains vast. In December, Washington authorized
$3.7 billion to finance nanotechnology research, a sum the Chinese government
cannot easily match within a scientific infrastructure that would itself
take many more billions (and years) to build. (217)
Yet when it comes to more mainstream, applied industrial development
and innovation, the separation among Chinese, American, and other multinational
firms is beginning to narrow. Last year, China spent $60 billion on
research and development. The only countries that spent more were the
US and Japan, which spent $282 billion and $104 billion, respectively.
But again, China forces you to do the math: China’s engineers
and scientists usually make between 1/6 and1/10 what Americans do, which
means that the wide gaps in financing do not necessarily result in equally
wide gaps in manpower or results. The US spent nearly five times what
China did, but had less than two times as many researchers (1.3 million
to 743,000). (217-218)
In all, foreign companies have established between 200 and 400 of their
own research centers in China since 1990. In part, tax incentives attract
such financing. But the biggest incentive of all, of course, is access
to China’s consumers. (218)
What is the likely outcome of all this R&D investment in China?
Even more overcapacity. Just as China’s abundant unskilled workers
feed the world more shoes and more gadgets that it needs—or at
least more than it can absorb without forcing prices down—China’s
abundance of newly skilled industrialists threatens to swamp the world’s
most highly prized high-tech markets. In the past three years, foreign
investors have invested or pledged $15 billion to build nineteen new
semiconductor factories. China imports 80% of the semiconductor chips
it needs, $19 billion worth, and the government has made it a point
of national pride to end the country’s dependence on foreigners.
(218-219)
-- Medical/Drug Industry
in China - “Taking a Pill for the Pain”
Although traditional Chinese medicine will remain entrenched in the
culture well into the foreseeable future, the demand for Western medicine
is soaring. China’s drug industry is big, with sales of $7.5 billion
in 2004. China also exports $3.5 billion worth of Western medicines,
which are particularly welcome in countries with few regulatory screens
and a need for low-cost medicines. (222)
The great American and European drug companies—among the most
profitable in the world—know this, of course. Not that they tread
into the Chinese markets easily. Rather, they enter knowing full well
they face a China often unwilling to honor the precious patent and trademark
protections upon which the profits of drug companies depend. Unlike
most businesses, the pharmaceutical industry is an open book to new
entrants because the components and chemical mechanisms of all drugs
sold in advanced economies are available in documents on file with government
regulators. Foreign drug companies beyond the power of effective regulatory
regimes can easily comb government records for the formulas of products
they can reproduce themselves. The value of this information is enormous.
For example, Pfizer, the maker of Viagra, had $45 billion in revenue
in 2003 and spent $7.1 billion on research and development. Until recently,
nearly every drug sold in China was a copy of a foreign drug. While
it takes Western companies about ten to fifteen years—at an average
of $250 million—to develop a new medicine, copying new medicines
takes only three to five years, at a cost between…$60,000 and
$120,000. (222)
-- Airplanes “Flights
of Fancy”
China has not yet built a wide-body commercial passenger jet to a global
standard. Projections for growth of Chinese air travel are enormous.
Airbus estimates that the Chinese market will grow fivefold by 2022,
and that the country will need at least 1300 planes that seat one hundred
or more people to meet the demand. That makes China’s skies a
$140 billion market, and the world’s aircraft makers will do whatever
is necessary to reach for it. Only the US market would be bigger. Today,
Boeing planes have a 65% share of the Chinese market. Boeing has also
played an important role in the development of China’s aircraft
industry, helping Chinese companies grow into suppliers of key parts
of its aircraft. The company reports more than 3000 Boeing aircraft
worldwide incorporate major parts and assemblies from Chinese suppliers.
By 2010, Boeing will be buying $1.3 billion worth of parts in China
each year. (227)
China prudently alternates which aircraft makers it buys planes from
giving it leverage to forge the best terms on price and technical transfers
from each of them.
----- “Pirate Nation” --- Recent News Items (231-235)
--A brewery near the coastal city of Tianjin counterfeits Heineken and
Budweiser beers. Its fake brews are sold in restaurants and “other
entertainment establishments.” Beer counterfeiters in -----China
tend to use shoddy glass bottles, and consumers have repeatedly been
hurt by exploding bottles
--Food counterfeiters in China have targeted Coca-Cola, Starbucks, Haagen-Daz,
and several foreign cheese brands.
--Proctor & Gamble shampoos, Head and Shoulders and Rejoice, are
faked in Lanzhou in Gansu Province, south of Inner Mongolia.
-- A Shenzhen company makes fake Cisco and 3Com network cards.
-- In Sichuan Province, counterfeiters set up a fake prison to manufacture
forty types of phony brand-name cigarettes. Police said it was unclear
whether the workers had been hired or kidnapped by the counterfeiters.
China is said to produce 100 billion counterfeit brand-name cigarettes
a year. Fakes found on the market in London contained a third more nicotine
and carbon monoxide, and ¾ more tar, than legal brands. They
also frequently contained strange ingredients such as plastic or sand.
-- Officials in Kenya seize huge shipments of counterfeit tires and
batteries made in China
-- Thousands of Chinese-made items of counterfeit Tommy Bahama, Polo,
Ralph Lauren, Tommy Hilfiger, Hermes, Lacoste, Hugo Boss, and Emporio
Armani clothing and other designer-brand merchandise valued close to
$1 million were seized from a trading group in Apex, North Carolina.
-- When Nintendo’s own team of antipiracy investigators joined
Chinese law enforcement officials in a 2004 raid of an electronics factory
in South China, they found 10,000 counterfeit Game Boy cartridges. The
haul was minuscule compared with the amount of piracy the Japanese game
company faces in China, where cartridges for its Game Boy machines,
which were designed to discourage copying, are cloned relentlessly.
Nintendo claims to have lost $720 million in sales in 2003 as a result
of piracy, though its dedicated teams seized 4 million fake cartridges.
The company, whose share of the legitimate game market is under pressure,
can ill afford to cede too many of its immensely popular Game Boy games
to pirates.
-- Counterfeit items: brake pads, insecticide, DVDs, MuVo (small MP3),
computer chips, Harry Potter books, fake vaccines, motorbikes, Toyoto
logo on Chinese cars, fake brand-name DVD players, 90% of Microsoft
products in China are pirated
-- Students in China
– “What China’s Smartest Students Know About Counterfeiting”
When high school students across the country [China] are given university
entrance exams for what are, relative to China’s population, a
small number of university slots, the students who gain admission to
China’s best schools are an extraordinary group of bright, inexhaustible,
and ambitious students. Once in school, they live in tight quarters,
not so unlike those given the migrant women who work in Shenzhen. Crammed
six to a room, with no private space to speak of and perhaps just a
single large table for all to sit at and a flickering fluorescent lamp
over head, China’s university students rarely fail to display
the diligence that delivered to them the treasure of higher education.
(240)
--“The Chinese-American
Economy”
Walk into nearly any retail store, examine price tags and labels, and
it is clear that China saves consumers enormous amounts of money. When
one considers that the nearly $150 billion worth of manufactured goods
coming from China to America are, by and large, goods that once came
from somewhere else, the magnitude of the savings begins to come into
view. But the savings that come directly from China’s factories
are just the beginning. China’s prices have a downward pricing
effect on the rest of the world’s manufacturers that dwarfs the
savings offered by Chinese goods alone. Hufbauer figures some $500 billion
in goods come from countries that are China’s low-wage competitors.
Another $450 billion in goods come from the high-wage American and Japanese
companies that compete with China’s producers. That adds up to
nearly a trillion dollars’ worth of additional goods whose prices
are pushed down by Chinese competition. (254)
--“The Price
is Right”
While China’s economic boom helped run up the cost of steel, copper,
aluminum, nickel, plastics, and nearly every other important industrial
commodity in 2003 and 2004, the prices of cars in major markets dropped.
Chinese factories churning out cheap car pars were one cause. When in
December 2003 cotton climbed to its highest price in seven years, the
price of clothing in American stores was down for the year. In fact,
in the US between 1998 and 2004, prices fell in nearly every product
category in which China was the top exporter. Personal computers dropped
28%, televisions by nearly 12%, cameras and toys by around 8%, while
other electronics, clothing of all sorts, shoes, and tableware also
dropped in price. (255)
--“The Price
Is Not Always Right”
So are the prices that Americans pay on Chinese goods the lowest possible?
Usually, but not necessarily. It depends on what’s being sold
and whether that industry can successfully lobby the government for
protection. “One of the big problems of economic specialization
is that it creates special interest groups,” observes Cox, who
believes that economic policy ought to be aimed primarily at providing
a better deal for consumers. “In the political process, politicians
usually end up representing suppliers who can donate large amounts to
their campaigns.” Cox argues that this imbalance can leave consumers
woefully underrepresented. Manufacturers’ groups lobby policymakers
because their industries have huge stakes in trade policy, but in any
given industry, an individual consumer’s interests might add up
to just a few dollars a year. (256)
For example, when the Bush administration slapped quotas on Chinese
brassieres in November 2003 to protect American manufacturers, it may
have saved the American bra industry from millions in losses, while
the cost of the quotas to the typical bra buyer might have been only
ten or twenty dollars per year. The manufacturers, Cox says, can send
all sorts of people to Washington to make their case, but no consumers
are going to make the trip just to save a few dollars on whatever product
is up for discussion. And so, the biggest group with the most billions
at stake has the smallest voice. (256-257)
It is a bitter kink of fate that among those who need the China savings
most are those who have lost their jobs because their employers needed
to cut costs and raise productivity to meet the China price, or because
they worked for businesses that could no longer compete on any terms.
(257)
Cox’s view of the primacy of consumer interests, though widely
shared by American economists, is hardly an accepted truth around the
world. Countries whose industries face competition from China must make
harsh choices that weigh the competing interests of businesses and consumers.
Choosing for the consumer requires putting faith in the very economic
churn that is now making China a supercompetitor. And it truly is an
act of faith. Economists teach that by embracing the tumult of the free
market, nations give themselves the best chance at prosperity. But most
of the world remains unsold on consumer-centric capitalism. Europe,
Japan, and the developing world largely focus their economic policies
on protecting their industries, their workers, or both, ahead of the
interests of consumers. (257)
-- Currency –
“On the Money”
Investors try to avoid an economic stake in China will find it no easier
than avoiding contact with the American economy, Japan’s, or OPEC’s.
It cannot be done. The reason, of course, is that China’s currency
is pegged to the American dollar. What does that mean exactly? Since
1997, China has maintained the value of its currency at about 8.3 yuan
to the dollar, where it still stood in late 2004. It is an old-fashioned
but effective way to manage a currency. Before Richard Nixon freed the
dollar in the early 1970s, the world’s major currencies all had
fixed rates of exchange against each other. At the center of the system
were gold and the US dollar. Countries could take the dollars they had
acquired in trade and present them to the US in exchange for gold, which
was sold at a fixed rate. It was then illegal for Americans to own gold
bullion in quantity, and the large stores of American gold were maintained
solely by the US government, which bought and sold it at an official
rate set by the old international currency system. (258-259)
Today, when the dollar rises or falls against other world currencies,
China’s yuan moves in tandem with it. China is the only large
trading nation that pegs its currency to the dollar. It does so by mandating
that whenever the yuan is converted to foreign currency, the transaction
must be made at the official rate and through a state-controlled bank.
(259)
Other countries, which similarly rely largely on exports for their economic
growth, also intervene aggressively in the world’s currency markets.
They act when their own currencies appreciate enough against the dollar
so as to damage their ability to export. They too influence the currency
markets using the power of their enormous reserves of foreign currency,
wading in to buy and sell currencies in hopes of bullying and cajoling
the world’s currency traders. But they cannot control them. (259)
Why is China the only big player that maintains a fixed exchange rate?
Hufbauer explains that the Chinese regard foreign exchange, especially
dollars, as “supervaluable.” Dollars in China, he explains,
fill the role formerly played by gold in the US and other countries
once on a gold standard. The Chinese central bank is keeper of nearly
all the dollars in the country. Dollars accumulate in the government’s
account as Chinese businesses that have earned money from foreign sales
exchange their dollars for yuan, and when foreign investors bring money
into the country to buy businesses or property. In the first half of
2004, China’s total foreign exchange reserves topped $640 billion,
a staggering amount. In size, that puts China’s cumulative dollar
account at roughly equal to a third of its gross domestic product. (Seen
another way, it nearly equals the value of everything that was bought
and sold in 2004 in Brazil, the world’s 15th largest economy.
In theory, China could show up one day and use its cash to buy up everything
Brazilians purchase in a year.) (259-260)
To help keep control of its currency, Hufbauer says, and to thwart the
possible emergence of a large black market, China offers its businesses
and citizens an incentive to turn in their dollars to government bankers;
the government overpays for dollars, giving back more Chinese currency
for greenbacks than a free-market buyer might if the yuan were not controlled.
(260)
For a long time, few companies and countries complained about China’s
policies. At first its economy was not prosperous enough or big enough
to warrant concern. And when an Asian financial crisis struck in the
late 1990s and the currencies of Korea, Indonesia, and Thailand collapsed,
China, which could have devalued its currency, stuck by its dollar peg
and was lauded for bringing stability to a most volatile situation.
While it took several years for the troubled economies to begin a rebound,
China’s kept chugging right along, the pegged yuan making its
exports irresistible bargains to the world outside and attracting the
foreign investment that is pushing the country. (260)
But now, in the eyes of most of the rest of the world, China fixes its
exchange rate too far below what it would be if the yuan were allowed
to be traded freely on world currency markets. Among the most forceful
critics of China’s currency policies are American domestic manufacturers
such as steel mills, casters, plastics molders, and machine-tool makers.
Through their trade associations, they argue that China artificially
depresses the value of its currency against the dollar by as much as
40%, a figure that is decidedly on the high side of estimates. (260)
But American manufacturers who do move production to China often realize
savings that would seem to support the claim. Of course, the currency
rate affects more than the items China makes; it affects the means of
production too. (If the currency is so lopsided, factories that cost
a million dollars to set up in China ought to cost $1.4 million elsewhere.)
(260)
The Chinese need a low-priced currency to keep their export machine
going and create jobs. But maintain the yuan’s low price also
means that Chinese consumers are stuck with a currency that would otherwise
buy more for them on the world market. China’s diligent savers
suffer too since their bank deposits are tied up in accounts that earn
low government-mandated rates of return, as the government, in effect,
siphons off money from savers to maintain its currency peg. (264)
The US financial landscape is littered with record debts of all sorts,
much of it financed by lending from China and Japan. America’s
government debt grew by $1.7 billion a day in 2004, reaching $7.5 trillion.
Moreover, in 2004, Americans collectively owed $9.5 trillion in mortgages,
automobile loans, credit cards, and other personal debts, a staggering
$84,454 per household. Americans’ household debt, in fact, has
never been higher. Instead of taking advantage of the lower interest
rates to refinance and reduce their debt burdens, many Americans have
regarded cheap money as an opportunity to go out and spend more. That’s
just the way exporters like it. The US government has seen fit to do
the same. Rather than use the period of low interest rates to pay off
national debt and keep annual budgets in balance, as the Clinton administration
did, the Bush administration set record budgets, slashed taxes, and
ran up record budget deficits so that paying off the national debt may
never be possible. The people of China are financing that profligacy.
(265)
The spendthrift habits of the US are reflected in its growing trade
deficit too. US consumers buy 1/5 of the world’s GDP, an increasing
amount of which is purchased on credit. (In 2003, Asia financed over
half of America’s trade deficit and government budget deficit.)
Jeffry Frankel notes that the US trade deficit roughly corresponds numerically
to the total of the surpluses of all the world’s trading countries
that are in surplus. (265)
Other countries get drawn into the relationship, often powerless to
resist. China and other surplus-generating countries do eventually reach
the limit on the amount of US securities they can buy. The European
Union is one place they turn to buy more. Because the euro does not
trade at a fixed rate against the dollar, and thus not against the yuan,
the purchase of euro securities pushes the euro up against the currencies
of both the US and China. For European consumers, that makes Chinese
goods less expensive. And for Europe’s businesses, it makes competition
with Chinese businesses intense. In the near term, Germany may have
the most to fear. China, Hufbauer says, is coming on strong against
three core German industries—chemicals, machine tools, and automobiles.
(265-266)
--“Where Have
All the Factories Gone?”
In three months covered (January 2004 to March 2004), 58 U.S. companies,
55 European companies, and 33 companies from other Asian countries all
announced plans to move jobs to China. The numbers were up dramatically
from just three years before. Over a comparable period in 2001, only
25 US companies announced shifts to China. *During the 2004 period,
there were also announcements of 69 US shifts to Mexico, 31 US shifts
to India, 38 US shifts to other Asian countries, 35 US shifts to Latin
American and Caribbean countries, and 23 US shifts to other counties
including Eastern and Western Europe and Canada. In all there were to
be 255 shifts out of the US. By extrapolating the number of lost jobs
from the first three months to the entire year, the study concludes
that US work sites moved 400,000 jobs to other countries over the course
of the year, twice the number that had moved three years before. (273)
Of the jobs moving in 2004, ¼ went to China. Yet the role of
China in migration is far disproportional to its numbers. The pressure
that China puts on other low-wage countries to drop their labor rates
makes these countries then become more attractive to American enterprises
looking for cut-rate homes. (274)
In 2001, American jobs that went to China were concentrated in industries
such as electronics and toys, for which low-wage countries are always
attractive. By 2004, the shifts were well-divided among a much larger
cross-section of industries that more closely mirrors the full American
industrial landscape. The study found that the companies most actively
moving jobs to China in 2004 were large, publicly held, highly profitable,
and well-established. Nearly three out of four of the workplaces that
shipped jobs out were branches of US multinationals. Perhaps predictably,
jobs performed by member of labor unions are among the most vulnerable
to the lure of China. (274)
Eviscerating organized labor also weakens the one constituency that
can best organize to protect the interests of workers in the halls of
government and in the boardroom. Without that voice, the global ambitions
of big companies can more easily cut their current employees out. (274-275)
Wince-Smith argues that the economy’s capacity for innovation
is the key to raising productivity, which itself is the most important
component of competitiveness and economic growth. Michael Cox of the
Dallas Federal Reserve argues that the chief problem for the US is that
it does not have enough global entrepreneurs. He notes that the country
can stand to export far more manufacturing and service jobs than it
does already, provided that American have the skills and creativity
to offer the world new products and services. (275)
There is, however, an important catch. Innovation happens best not when
smart people work in small groups or geographic isolation but when they
have the benefit of an environment that gives them deep knowledge of
their industry. Chip designers who are removed from assembly lines do
not get the feedback from the factory pros that help them optimize their
designs. Software firms that work far from the world’s tech corridors
do not benefit from the crosscurrent of workers who come and go among
firms, or from the ideas shared with industry pals over lunch. For America
to stay the most innovative economy, it must also be the most complete
economy. (275-276)
-- Language - “Cheap
Talk”
To go global, Americans will also need to take some basic steps first.
A recent count of Chinese-language students in American high schools
came up with just 50,000, while in China there are nearly as many people
speaking English as a second language as there are people who speak
English as a first language in the US, Canada, and Great Britain combined.
One must ask who will be the better global managers, native speakers
of English working in China who rely on their bilingual local managers
to interpret and order the workplace or Chinese managers who can deal
with their workers directly in their first language and communicate
with their international counterparts in English? (277)
-- Education - “Can
We Really Stay in the Game?”
Competitiveness requires a highly educated workforce. On that score,
the news in America is not promising, especially when one looks at grade
schools and high schools where the vast majority of American students
are not getting the skills they need to be sharp enough to flourish
in a future informed by China. One can only despair about the education
system until there is a fundamental shift in the public will so that
schools become the top national priority of a people firm in the knowledge
that every lesson not learned will equal a job not earned. (278)
--“Ignorance
Isn’t Bliss”
As old-line manufacturing jobs disappear, its axiomatic that citizens
of advanced countries prepare for the knowledge economy, a global workplace
that favors intellect over brawn. Students seeking careers and workers
looking for new ones are often directed to pursue a job in the brainy
post-industrial workplace. Yet, often, the job of the knowledge worker
is misunderstood. Silicon Valley computer programmers were once seen
as the epitome of knowledge workers, but many still found their jobs
easily transferred to low-wage programmers overseas. Most vulnerable
were those once high-paid coders who did the grunt programming on pieces
of other people’s projects. Knowledge workers must possess more
than rule-based skills used to perform complex but discrete tasks that
are easily transferred to someone else who has mastered the same rules.
In contrast, their colleagues who conjure up new applications for software,
new uses for computer chips, and new ways to manufacture them have seen
their incomes go up. (279)
Another misunderstanding of the knowledge economy is that it applies
mainly to high-tech industries and communications. Countries can only
compete against China’s low wages and high skills if they have
a population that is ready to make nearly any job a high-tech job. Even
a farmer is a knowledge worker in the modern American economy. As American
factories of all kinds morph into high-tech shops, the workers who are
left to manage them must be skilled enough to operate and service complex
machines, handle inventory and work-flow databases, and they must have
the core knowledge necessary to adapt to new technology that enters
their workplace. In the service sector, jobs that once required little
education at all will increasingly demand high skills, especially those
jobs that can justify better-than-minimum wage. (279-280)
--“A Forced
Smile”
Chinese officialdom works hard to reassure the world that the country
is no threat. Perhaps the most impressive accomplishment of the Chinese
Communist Party is that after years of fomenting despair and uncertainty,
it has discovered how to instill China with optimism. (283)
One gauge of how influential the good news machinery is in China is
the nearly automatic responses that Western residents in the country
give to the questions that outsides are disposed to ask. Inquire, for
example, about the country’s human rights record, which by any
Western norm is abysmal. Mention any horror—the Tiananmen crackdown,
the brutal repression of farmers’ protest movements, the occupation
and cultural domination of Tibet, China’s more-than-friendly relations
with foreign regimes so bad (including Burma, North Korea, the Sudan,
and Iran) that most other big countries shun them, or the ongoing, often
violent subjugation of religionists, including followers of Falun Gong,
Tibetan Buddhism, and Roman Catholicism. Offer concerns about how China
censors the press, watches and blocks how its citizens use the Internet
and telephone text messages. State the plain fact that the Chinese do
not allow big families. Ask about China’s one-party system, reminding
the listener that the Communist Party is fixedly antidemocratic and
self-perpetuating. This is just a short list of the most common grievances
against China, but the issues have not changed much over time. (284)
To a visitor engaging expatriates on the big issues, however, it is
striking how thoroughly the transplants parrot the views of China’s
state propaganda. They say they feel safe in China, that the country
needs stability not democracy. Chaos, goes the argument, is China’s
gravest enemy and rapid reform would risk it. The Chinese state takes
the poor seriously, they say, and America has its own problems, such
as a national willingness to go to war. (285)
This pressure to toe the party line has a strong effect on how the world
deals with China’s rise. Because American and other foreign executives
are expected to toady to the official Chinese version of reality, important
economic security and trade issues are never discussed as thoroughly
as they ought to be in the world’s other capitals. The very group
of foreigners that has the most at stake in China is expected by the
Chinese government to always be on its best behavior. Companies with
interests in China raise the key issues of trade barriers, currency
values, Chinese government attempts to rig business in favor of Chinese
companies, or whether the Chinese are paying full fare for technology
can expect certain grief from Chinese officials. Heaven forbid that
American or European companies raise flags over China’s environmental
degradation, labor rights, or religious freedoms. (285)
--“Playing
the Triangle Offensive” – Them Against Us
If Americans are to fully appraise China’s significance, they
must also recognize how the face of America makes China strong. The
world leaders who now make frequent visits to Beijing accompanied entourages
of industrial ministers, trade secretaries, and business leaders certainly
come to ink billion dollar deals. But that is not all. They also come
to talk power, and power not just for themselves but against the US.
For all the world’s serious grievances against China, it is the
only country that can counterbalance the economic and political weight
of the US. (286)
Moreover, the very nature of trade itself has an anti-American cast.
Chirac and Chinese president Hu Jintao presided over a ceremony in which
the French Atomic Energy Commission officially signed on to lend its
considerable expertise to the Chinese Ministry of Science and Technology
to develop Linux open-source software for PCs, servers, and handheld
computers, thus allowing the French to help the Chinese defeat the American
company Microsoft while providing a gift to the Chinese people that
may bode well when it comes time to hand out contracts for nuclear power
plants. “France likes to play the China card against the US.”
(286-287)
But France is hardly the only European country to play its China card.
David Shambaugh, director of the China Policy Program at George Washington
University, says “the breadth and depth of Europe-China relation
are impressive, and the global importance of the relationship ranks
it as an emerging axis in world affairs.” Shambaugh notes that
Europe’s trade with China is accelerating rapidly, having grown
25% in 2003 and up nearly 40% again in 2004. The European Union and
China are each other’s largest trading partners and will soon
exchange more than $200 billion in goods. As of 2004, Europeans have
invested more than $40 billion with promises to pour in $30 billion
more. China is now home to more than 18,000 firms established with European
Union money and talent. (287)
Do China and Europe make easier partners than China and the US? The
answer is probably yes. Europe has no historical or political affinity
toward Taiwan and adheres strictly and unambiguously to a one-China
policy. In addition, the European Union nations have little strategic
interest in Asia, while the US, in contrast maintains a powerful military
presence in Asia and the Pacific and has important territorial concerns
and nonnegotiable claims. (288)
Most important, China and many European Union countries are increasingly
distrustful of the US. While once it was the US that urged China to
give up its revolutionary fervor and join the mainstream of nations
committed to a stable world, now China flourishes under the status quo,
and its desire to lift itself up depends on a world with as little turmoil
as possible. From the view of France, Germany, and a majority of the
EU nations, China is a more committed partner to world stability than
the US, which is now seen as willing to push violently against international
norms. France and China, Shambaugh observes, lead efforts to constrain
the US through such multilateral institutions as the UN, and by creating
a multipolar world. German, Spain, and the Scandinavians follow. (288)
-- “Aggressive Tendencies”
On the Taiwan issue, China’s rhetoric on the use of force is unambiguous.
China’s capacity to drive its desired goal of unification has
been buttressed by its economic growth and integration in the world
economy. On one hand, an economically strong China has had an easier
time diplomatically drawing the rest of the world closer to the Chinese
position. On the other, China’s technological advancements have
pulled the shores of Taiwan closer to the reach of the mainland’s
military. China firmly declares that it is free to use force against
Taiwan should it see the need. Indeed, China has spelled out a broad
range of circumstances in which it would launch an attack, each vague
enough to justify an invasion at any time. (281-292)
There are also more pragmatic reasons to expect a richer China to grow
increasingly assertiv
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