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China’s ascension as a full-fledged economic superpower took place during the presidency of George W. Bush. But his administration’s benign neglect of the geopolitical economy is not solely to blame for the decline in U.S. power and prestige vis-a-vis a competitor – the blame must be shared by six presidencies going back to Ronald Reagan’s watch, when the bilateral deficit expanded exponentially from US$6 million dollars in 1985 to $1.6 billion in 1986, according to U.S. Census Bureau figures.
Major studies released this week by two Washington D.C.-based organizations, the Center for Strategic and International Studies and the U.S.-China Business Council, offer separate big-picture and situation-on-the-ground descriptions regarding the realities confronting the United States’ economic interaction with China today.
At this juncture it is probable that only significant numbers of disaffected Chinese impacted by environmental or social crises could stop the country’s economic juggernaut. The People’s Republic of China is the world’s second-largest exporter and second-largest national economy, trailing for now – and for the next decade or two by most credible estimates – the United States in both categories.
In addition, China stands alone atop the global economy as the wealthiest country in terms of its foreign exchange reserves, which total over US$1.8 trillion. It is also the sharpest exporter, with an account surplus growing at more than $50 billion per month, topping $372 billion for its trade balance surplus worldwide last year.
The U.S. contribution to this figure is noteworthy. According to the U.S. Census Bureau’s Foreign Trade Statistics report, the U.S. had a US$101 billion trade deficit with China in 2001, a figure that grew to $256 billion by 2007. President Bush will be out of office when statisticians get the final 2008 trade data and tally up his dismal two terms in office.
The next president and his coterie of advisors need to recognize that China is a new type of economic superpower posing a unique set of challenges. The CSIS study, “China’s Rise: Challenges and Opportunities,” defines China’s superpower status by its strength to affect the global economy, dynamic contributions to growth, and major impact upon other countries because of trade and capital flows.
What makes China a unique superpower is having a GDP of less than US$3,000 per capita, widespread government intervention on prices and allocation of goods and services, plus the limitations of lacking an electoral democracy and free press.
The CSIS maintains that all three of these factors reduce the likelihood of China easily accepting the systemic responsibilities that accompany superpower status, and reinforce its determination to reach a high per capita income without profound reform of its authoritarian political system.
In addition to this big picture, it is essential to look at how U.S. firms see the situation on the ground. The USCBC annual survey of the China business environment, released on Thursday, said member companies “continue to increase sales and profitability in the third-largest market for U.S. exports,” but added that firms “remain frustrated by bureaucratic barriers to market expansion and shortages of local managerial and other personnel.”
While USCBC companies polled were “optimistic about growth prospects,” they also expressed “rising concerns about PRC government policies under development that might restrict future growth in many key industries.”
Asked to name the biggest problem facing U.S. businesses in China, the companies’ replies were tied between issues related to administrative licensing and those concerning human resource retention and recruitment of talent.
Companies continued to report China’s bureaucracy in handling business and product licensing as major stumbling blocks that did not improve over the last 12 months. Slow, opaque and inconsistent processes impeded both market entry and subsequent expansion, moving the problem from second place in 2007 into a tie for first this year among U.S. firms.
Ironically, the world’s most populous nation, which adds millions of new workers to its workforce every year, continues to have a white-collar labor shortage. Human resource departments’ difficulties in finding and keeping middle- and upper-level managerial and technical staff have topped the USCBC’s survey for the last three years. Companies report that salary increases in some jobs jump 20 percent per year.
The third biggest problem with doing business in China in 2008 was cost increases, with raw materials and taxes being cited. Transparency followed by uneven enforcement of laws in China rounded out the five main pressing issues for U.S. companies.
The top ten list was rounded out by problems with intellectual property ranking sixth, competition and overcapacity seventh, development of sales and distribution channels eighth, issues with customs and trade departments placing ninth and protectionism coming in tenth.
USCBC members surveyed were 90 percent “optimistic or somewhat optimistic” about prospects and expanding their businesses in China over the next five years; 82 percent were also “somewhat or very concerned” about Chinese economic nationalism in policies restricting investment expansion, or favoring domestic technologies and product standards to protect “pillar industries” and competitors deemed “national champions.”
Recognizing that economic nationalism was on the rise, the CSIS also noted there was no evidence China’s challenge to the economic order derives from a “cohesive let alone comprehensive, strategy connected by political or intellectual leadership.”
Described further as “piecemeal, rather than across the board or with explicit articulation,” the CSIS noted in “numerous economic interactions China pursues strategies that conflict with the norms, rules, and institutional arrangements that attempt to structure the world order.”
The Washington D.C think tank says, “China’s challenge to the world economy links directly to its core internal agenda and debates over how it should proceed on a series of vital domestic issues.
“China is undergoing significant evolution in its attitude toward the global economic order as it recognizes its increased capacity to influence global events,” the report stated.
When it comes to trade policy, CSIS analysts say China “does not hide its preference for low quality, politically motivated bilateral and regional arrangements over more economically meaningful and demanding multilateral liberalization through the WTO or high-quality agreements with individual trading partners.”
A key task for the next president will be how to stop China wriggling out of its superpower responsibilities by calling itself merely a “developing country” in order to perpetuate “special and differential” treatment within the current global trading system. Otherwise China will continue to be part of the problem rather than part of the solution.
