China reaches out to develop within
By Thomas P.M. Barnett
BOOK REVIEW: "Living in China's World," (China Shakes the World, by James Kynge), by Stephen Kotkin, New York Times, 5 November 2006, p. BU10.
ARTICLE: "Rush for Wealth in China's Cities Shatters the Ancient Assurance of Care in Old Age: As rural Confucian roots erode, no one is left to do the work," by Howard W. French, New York Times, 3 November 2006, p. A8.
ARTICLE: "Who wants to be a trillionaire? Not China's central bank," The Economist, 28 October 2006, p. 85.
ARTICLE: "U.S. Firms Plan More Expansion In China but See Tighter Margins," by James T. Areddy, Wall Street Journal, 2 November 2006, p. A7.
ARTICLE: "China Council Approves Plans To Spin Off Its Postal System," by Andrew Batson, Wall Street Journal, 2 November 2006, p. A7.
ARTICLE: "As Barriers Fall In Auto Business, China Jumps In: Geely Aims to Be World Player, But Quality Woes Linger; Cars a New Commodity?" by Gordon Fairclough, Wall Street Journal, 7 November 2006, p. A1.
ARTICLE: "GM Bets China Will Become Crucial Export Base: CEO Calls Fit 'a Natural' As Cost Cutting Intensifies," by Gordon Fairclough, Wall Street Journal, 7 November 2006, p. A3.
POLITICS & ECONOMICS: "Behind China's Stance on North Korea: Beijing's Tack on Nuclear Test May Signal Shift in Long-Held Policy of Non-Interference," by Gordon Fairclough and Neil King, Jr., Wall Street Journal, 6 November 2006, p. A8.
I think I'll need to get Kynge's book, which is winning prestigious awards already, although this review points out that it's essentially an outward-looking-in view of China's rise--as in, how much it's freaking out the West.
No argument with that thesis, because today's Old Core complaints will become tomorrow's Gap battle cries, and so China's charm offensive will be necessary for the long haul, as will some essential changes in how it does business abroad.
I actually blog this review because I found Kotkin's opening paras so good:
America remains a colossus in Asia, for now. But between 1999 and 2004 trade among Asian countries jumped more than 80 percent, to $1.2 trillion, according to the World Trade Organization. Trade within Asia has come to exceed trade between Asia and the United States.
China has become the largest trade partner of almost every country in Asia. Even the exchange between the longtime rivals China and India ballooned over the last decade from about $1 billion a year to more than that each month. Of the $600 billion in foreign direct investment into China since 1978, most has come from within Asia.
Asia is a giant, competitive, interdependent regional economy that affects the world. Long-standing cross-cultural ties are strengthening, too, because of booming intra-Asian tourism and student exchange. "Korean wave" dramas and pop music can now be found in much of Asia, alongside Japanese and Hong Kong fare. And it's now often hard to distinguish national origins of dubbed television and movies.
Now, Kotkin's bit on intra-regional FDI is a good one. In fact, it was Cantor Fitzgerald's primary reason for pushing for the "economic security exercise" we did on FDI in Asia back in early 2000: the fear that a competing rule set would emerge in Asia that limited American economic penetration, essentially closing down easy first-ownership access to market-making opportunities.
Of course, this trend is inevitable and natural. For now, a lot of Asian FDI money is essentially washed through the U.S. financial markets for later investment by our experts back into Asia, meaning that our sense of Asia investing in itself is probably underestimated--i.e., it's even higher than we realize since Asia recycles a lot of its trade surplus through out debt markets.
Over time, however, this recycling process will lessen dramatically, primarily because China's financial markets will grow more sophisticated and confident and that money will find better, more direct opportunities for investments at home.
There is that vast interior of China that still needs to be developed. It can't be allowed to degrade into a vast sea of old people with no one to take care of them and China importing most of its food. That will simply create too many pressures internally and around the world at large. As one company exec puts it in the NYT piece: "In our society, children have become the highest good, and old people have become nothing."
In a society that will age more rapidly than any in human history, this is not a sustainable mindset. China already has roughly 150 million (half of America's entire population!) over the age of 60, and four-fifths of them live in the less developed, less connected rural areas. Meanwhile, that huge floating population of migrant workers (another 150 million) has recently abandoned those very rural areas for whatever jobs they can get in the cities.
Stats like these are poorly understood in the West, especially among the China hawks and trade protectionists here who act like China is just going to rip us off, get rich, and then close off their economy to us, which--of course--is a rather ludicrous scenario.
When I'm talking about the "closing" of the Chinese economy, I'm talking only about the first-in ownership of market-making companies. Once matured, China's economy will still provide the usual opportunities, they just won't be the bargains and the great potential payoffs any more. Instead, they'll be opportunities more like you find in Europe--good money, just not the same percentages.
That's why you're seeing the major American car companies like Ford (recent announcement) and GM (cited above) declaring they're "all in" as far as the Chinese production market is concerned. First, you have to have access to the cheap labor and rising share of global R&D (all those engineers). Second, you have to have access to that huge domestic market (25m units per year soon, whereas the U.S. is only about 15m). Third, you have to have access to the product lines that can be exported from China, largely to the rest of the emerging markets and the Gap regions (with the conquering of the American market still several years off).
But, boy oh boy, the infrastructure build-out of the next 10-20 years will be spectacular. China's investment in itself is running about 40% of GDP, which is stunningly high. With all those reserves, you'd think could build out even more, even faster, but there are obvious limits to that approach.
As the Economist argues, China will simply have to force down its own amazing savings rate, getting people to spend more and thus bolstering their own internal consumption market. You simply can't keep all those foreign companies, much less the ambitious rising domestic ones, on the hook for too long regarding all those new consumers. At some point the build-out needs to morph into the buy-up as well, as the settling of China's interior resembles the boom times associated with the settling of the American West--right down to the extension of transportation and energy and communications networks that makes this integration possible, plus the rapid rise in consumerism among a population mostly skewed to the bottom of the pyramid--so to speak. But hey, that's how Singer and Sears Roebuck and the rest of them got started: selling to average people.
What China will go through over the next quarter century will be like watching the U.S. from 1865 to 1890. It will be a stunning transformation, with the upshot being, foreign policy-wise, that China needs to adopt the persona of a full-service global superpower.
Chinese foreign policy experts talk about the need to develop this mindset, that of a great power mentality, or daguo xintai.
When I was in Beijing talking to the military think tank last month, I advised the officers and researchers to recognize the historical task before them: there was the "revolutionary" force that was the PLA for the early decades of China's communist history, but there needs to be a "great power" PLA for this century, one whose ethos and myths are created in a series of positive experiences in global affairs (for the U.S., there was the frivolous Spanish-American War and associated small-country conquerings, and then the key twin-pack of WWI [where the Marines and Army first came of age in a global sense] and WWII [where the Navy came of age and the Air Force was born]). Yes, there were crucial mythical experiences for the Army, Navy, and especially the Marines prior to the 19th century, but all those forces really evolved into their modern incarnations starting with the first World War.
Do you know Teddy Roosevelt was the first sitting American president ever to travel abroad? Stunning, isn't it? But that's how insular we were prior to that rising global profile and attendant military capacity (the Great White Fleet he helped build as Assistant Secretary of the Navy under McKinley, whom he later succeeded).
Know where he went? Panama, of course.
You look at that roughly two-decade period from TR through Wilson and you get the modern images of American patriotism, our sense of definition in the world, and our emerging sense of power. That made our great reshaping of the world via WWII and its aftermath possible--those formative years.
China needs to have such a formative experience, but it can't have one unless we, as the big kid on the block, effectively allow it to happen and shape it in ways that benefit global stability, which is why it's so crucial that North Korea's fall go well, and that China come out of it with a lot of global prestige and an important story to tell about how it uses its military force as a force for global good.
China's trying right now, and there are lots of positive signs, like the 1,000 peacekeepers they're sending to Lebanon--the biggest overseas contingent Beijing has ever mounted. We need a lot more situations like this, because we need to actively shape China's emergence to our benefit, like the Brits did cleverly with us.
Why do we do this? More stability. More commerce. More wealth. A better life for us and more of the rest of the world as a result.
We do it because we're smart and think strategically. And because we're not trapped by old mind-sets and prejudices and fears.
That's why I think it's so important for Obama and others of his age range to run for president in '08. Frankly, too many of the Boomers are simply too brainwashed by their experiences in the Cold War and the Vietnam Era (along with Nixon's tumultuous reign) to see the possibilities staring us in the face. |
