THE UNITED STATES AND THE RISE OF CHINA
There is a perceived misconception among many western companies that India and China, although they have a fair share of foreign direct investments in the field of manufacture and management, lack the expertise to really challenge western skill sets. Well, think again. India and China have been recipients of well-advanced western technology and this know-how was transferred to these nations at the time of joint ventures and equity participation. India challenges the west in software technology and skilled workforce, while China is a giant in the manufacturing field. These developing, ‘knowledgeable economies today stand to challenge western dominance in economic growth and have progressed much faster than most western economies.
Arvind Subramanian’s claim that China’s economic dominance is ‘inescapable,’ does spark credence, given the fact that China’s economic growth in the last decade has been 11% consistently. Even if it were to drop in the next 10-15 years, as some foresee it to be, it would still be better than that of the U.S, which is estimated to hover around 2.5% - 3.0%. The facts that tilt the scale in favour of China, according to Subramanian are the country’s GDP, trade, and credit rating. He believes that China will account for 20% of the global GDP in terms of dollar holding and buying power. While this may not measure up to the U.S’s GDP at that point of time, it will have a substantial impact on global economic order. When China’s trade; both imports and exports, are considered, it is way ahead of the U.S. Just about everything happens in China today. Even if the Liberal Left were to condemn China’s aggressive trade tirade, the business class will continue to do business in China, because China after all, is a major market for U.S businesses.
When a country like China can provide foreign businesses the luxury of cheap labor, raw materials and tax benefits, would they refuse the invitation? This is the reason why most multinationals have moved out to China. The Chinese competitiveness is drawn from its surplus labor force, land and natural resources. China is the most populated country in the world with a population of over 1.2 billion people, and this huge population gives China enough and more of cheap labor. Worker’s salaries have shown little fluctuation over the years, and remain relatively low in comparison to many other developing countries. This is a reason why most of the multinational companies invested heavily in China. Thanks to the FDI, the Chinese middle class began to grow, as job opportunities grew with industrialization, and they could now buy things they could only dream of some 3 decades ago. Today, “China’s middle class has grown to such proportions that it is, in absolute terms, 157 million people. Only the United States has a larger middle class. Buoyed by their growing buying power, retailers and manufacturers find China, an extremely attractive country to invest in. In certain sectors, reflective of middle class consumption, China is on the verge of overtaking the U.S as the most important destination. In order to substantiate this, OECD (2010), reported that, “While the US accounted for 37 per cent of global car sales in 2000, China was way behind at barely 1 per cent. However, including trucks and buses, vehicle sales in China was expected to surpass 13 million in 2009, which would make China the world’s largest vehicle market.”
Continuing with the report, OECD quoted the People’s Daily Online (2009), which reported that, “while General Motors sold 10 cars in the US for every one car sold in China some years ago, the ratio has changed considerably today, and China is poised to become a bigger market than the US for America’s largest automaker.” This could have a serious repercussion on the U.S’s national interests. Just like in many other sectors, the automotive industry could slowly die out in the U.S and emerge stronger in China. Americans would be left with little or no jobs at all in certain industries and this could hurt the U.S financial institutions badly. This could lead to a chain reaction that ultimately forces the U.S government to default their debt obligations. What if China starts to sell a part of its currency reserves? This could trigger investors skittish, who fear that the dollar might collapse. The panic could force the U.S treasury to auction their bonds, and because the dollar is volatile, the bonds could go unsold, which will immediately affect the country’s AAA credit rating. The government will then have to turn their attention to increasing interest rates, but if interest rates exceed growth rates after a certain period, the government would have to hunt for funds from external sources. If this fails, then the government will have to default their debt obligations and look to China to pull them out of the rut.
The above points can be taken seriously, but I personally feel that China will not be able to dominate the global economic order for a long time to come. China lacks skilled managers, engineers and technicians, and with liberalization of international trade and technological innovation, China’s so-called advantages of cheap labor force have become less important for foreign investors. This is an area the U.S can take advantage of. The United States offers unique opportunities for entrepreneurship because of its favorable business culture, mature venture capital industry, close relations between universities and industry, and an open immigration policy, as reported by the Global Entrepreneurship Monitor. Companies like Apple and Microsoft, Google and Facebook, were founded and are based in the United States. The best of weaponry and armoury are made in the U.S and these have worldwide demand. The best Universities are also here and if importance is given to educating the young American populace, the U.S can continue to rule the world on the technological front. Given the technological advantage available in the U.S, to curb or minimize the damage caused by out-sourcing, the government needs to stress to businesses the importance of recognizing the “need to add value, shorten lead times, identify product improvements, scrutinize wages and benefits and finally increase demand for the product” (Martin and Gathen, 2005). If these actions are initiated, and which will take some hard decisions to fructify, the U.S economy can be brought back on track and control China from dominating the global economic order, as Arvind Subramanian claims.
References
Kharas, H, (2010), The Emerging Middle Class in Developing Countries, Working Paper 285, OECD Development Centre, Retrieved February 27, 2014, from http://www.oecd.org/dev/44457738.pdf p.30
Martin, F and Gathen, G, (2005), Stamping Journal, Revitalizing the U.S. tool and die industry: Tips to keep your business at home, Retrieved February 27, 2014, from http://www.thefabricator.com/ToolandDie/ToolandDie_Article.cfm?ID=1087
People’s Daily Online, (2009), China's 10 Millionth Vehicle This Year comes Off the Production Line
