Comment: China is no threat to America

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Last updated at: (Beijing Time) Tuesday, October 28, 2003

Comment: China is no threat to America

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We still fear China. The danger is not what it once was, of course. China now lurks as a low-wage competitor siphoning off jobs and markets, not the bellicose communist menace of 30 years ago. The change is progress; but in too many eyes China remains a threat.

China's manufacturing wages average 61 cents an hour, compared with $16 in the US and $2 in Mexico. As a low-cost producer, China has bulked up with $40bn a year in foreign investment. The country now exports a quarter of its output, up from 5 per cent two decades ago. China's growth spurt has made it the world's second largest economy after the US, measured in gross domestic product.

All this provides the grist for the alarmist view of China. The real danger in China's rise, however, does not lie in American consumers snapping up cheaper clothing, shoes, toys and electronics. It is in corporate America trooping to Washington for trade protection to fend off this new threat.

The arrival of an economic force as big and dynamic as China will jolt the US and other countries. Workers will lose jobs and companies will go bankrupt. But hiding behind trade barriers will do even more harm. If nations shun the protectionist path, a fast-growing, wealthier China will make the rest of the world richer, not poorer.

Some companies are pleading for protection from China. At best, protectionism will give producers a false haven, a temporary reprieve that comes at a high cost to consumers forced to pay higher prices. Cars, steel and textiles have been among the most protected US industries in recent decades and all of them continue to spiral downwards. Removed from the crucible of competition, companies grow sluggish and in- efficient. In time, they wither anyway, taking with them the jobs we tried to protect.

The US will do better if companies confront China's economic ascension by seeking their advantage in it.

For some, this means investing in China, either to serve the local market or to use its cheap labour to cut costs and stay competitive. For others, the right response lies in tapping into China's growing demand for imports or by looking for new ways to create an edge in the marketplace.

Competing rather than retreating is not easy; but American companies are doing it.

Eastman Kodak operates 8,000 retail outlets and five manufacturing plants in China. Motorola invested $3.4bn in two Chinese factories. A $1.1bn investment has made Coca-Cola a big seller in China. Yum Brands has expanded its Chinese business to 800 KFC outlets and 100 Pizza Hut restaurants.

Americans fixate on the nation's merchandise trade deficit with China, which swelled to $104bn last year, surpassing even Japan's trade deficit with the US. The red ink disguises the fact that once-sleepy China is becoming a big market; it imported $250bn of goods from the rest of the world in 2002.

US companies are grabbing part of the business, tripling sales to China in the past decade to $22bn. The US sells China everything: aircraft, soyabeans, fertiliser. US law firms and other service providers are also making inroads.

The investments and exports are encouraging, and prove that US companies can seize the opportunity being created by China's rush into the world economy.

The trouble is that not enough companies are doing it.

US direct investment in China, excluding Hong Kong, averaged $1.5bn over the past five years, less than in Singapore or Belgium. At the same time, other countries have been more aggressive in capturing China's growing market. The nine nations that border China ran a combined $26.5bn surplus with it in 2002.

Corporate America is still not agreed on how to deal with China's emergence. It teeters between embracing the market with investment and exports, and denying it with trade barriers.

But fear of developing nations is not new. Japan, Taiwan, South Korea, Singapore, Brazil, Mexico and other countries have been cast in the role of cheap-labour bogeyman. In time, India or some other nation may follow China on the path of export-led growth.

China - or, indeed, any other nation - getting richer should be reason for celebration, not consternation.

Pursuing its comparative advantage in low-wage manufacturing, China will force other countries to shift resources into what they do best. For the US, that usually means high-value services, technology and intermediate goods, activities associated with jobs that pay well.

China's opening is driving a vast reorganisation of the international division of labour. It will sometimes bring wrenching changes - but that has always been the price of progress.

(Source: agencies)

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