Myth of China as a Superpower

Many people in the West believe that China is already a superpower, or will quickly replace the United States to become a superpower. A recent poll by the Pew Research Center reveals that 44 percent of Americans believe that China is the top global economic power, while in reality, China’s economy is barely one-third the size of the U. S. economy. This kind of misconception has engendered many unrealistic fears about China.

The truth is that China is not a superpower, and I doubt it will ever become one.

Fareed Zakaria, CNN host and Washington Post columnist, defined in his bestselling book The Post-American World that a superpower is a country that achieves dominance in ideas or ideology, an economic system, and military power. Continue reading

Unlocking the power of Chinese consumers

An interview with Stephen Roach by Clay Chandler, the McKinsey publishing group’s Asia editor in Hong Kong.

In China’s rush to join the global economy, the country stoked exports and government-led investment but neglected to build social and economic institutions needed to encourage consumers at home. Stephen Roach, Morgan Stanley Asia’s chairman, says its time for the world’s fastest-growing economy to find a “back-up plan.”

Myth of China’s Manufacturing Prowess

People often compare China’s urbanization to Western industrialization in the 19th century. In both cases, a large population moved from the country to the city. Society advanced from agricultural to industrial via manufacturing on a massive scale.

However, there is a key misconception about China’s manufacturing prowess.

In the United States and Europe, the manufacturing industry was created due to technology innovation. For example, railways came into existence because of the invention of the steam engine and automobiles were created because of technology breakthroughs in automobile engines.

In China, the manufacturing industry is being created in response to global demand. Chinese manufacturers take orders from Western companies that have designed products for their home markets. They have no involvement with product development, innovation, market research, and even packaging. Chinese manufacturers have no experience in bringing their own products to overseas markets.

Continue reading

Myths about China’s Exports

News is out that China overtook Germany to become the largest exporter in 2009 (not surprisingly). Its share of world exports increased to almost 10 % – about the same slice as Japan’s exports in 1986. A recent Economist article predicts that if China continues its current pace, its share of the world’s exports will increase to about 25 percent in ten years.

As I dug deeper, however, I saw a different side of the story. China’s exports actually fell by 17 % in 2009. Its imports, fueled by a burgeoning middle class, have been stronger than exports, increasing by 27 percent while exports were falling. Continue reading

China’s Urban Billion

A recent McKinsey Global Institute report “Preparing for China’s Urban Billion” says that the country’s unprecedented urbanization will continue over the next 20 years, and by 2030 China’s urban population will reach 1 billion. Here are some numbers that are indeed mind-bogging:

By 2025, China will have 221 cities with more than one million inhabitants – compared with 35 in Europe today.

China’ urban population will expand from 572 million in 2005 to 926 million in 2025. Over 350 million people will move from rural areas to the cities – more than the population of the Unite States. Continue reading

Choking on Growth? – Another Side of Stories

The New York Times ran a series of articles “Choking on Growth,” citing many severe environmental damages that accompanied China’s unparalleled growth.

One of the more startling problems is a shortage of water in northern China. Almost five-sixths of the wetlands in the North China Plain have dried up, and the area, where more than 200 million people reside, may be drained within 30 years.

The issues discussed in the article are true, but the tone is arrogant. Usually, there is another side of stories that is not told:

Five thousand years ago, one of the first emperors, Yu, fought to control the flood from Yellow River in the North China Plain. “????” (Honorable Yu Overhauls Water) is a story that can be cited by every child in China. Thousands of years later, Chinese are still fighting the same problem.

In 2002, China started a gigantic project called “????” (South-to-North Water Transfer Project). Chinese compare this project to the Hoover Dam in the United States, but on a much bigger scale. It’s a network of canals that brings water from flood zone of southern China to the North.

Another proposed solution is rapid urbanization, which is already under way. As radical as it may sound, scientists say “converting farmland into urban area would save enough water” because “wide spreading farming still uses more water than urban areas.”

As the article also points out, “Britain, the United States and Japan polluted their way to prosperity and worried about environmental damage only after their economies matured and their urban middle classes demanded blue skies and safe drinking waters.”

Indeed, Chinese look at Americans as their role models. They want to own homes, drive SUVs, and travel around the world. “Typically, industrial countries deal with green problems when they are rich,” said Ren Yong, a climate expert in Beijing. “We have to deal with them while we are still poor. There is no model for us to follow.” – With this attitude, there is hope for resolution.

A Wake-up Call: China Passing Us By

An article by Knowledge @ Wharton cited David G. Marshall, a real estate guru and CEO of Amerimar Realty, about his experience of visiting China recently:

“In the last 10 years, not the last 22 years, Shanghai has built 2,000 high-rise buildings between 20 and 108 stories high — one more spectacular than the next. We stayed on the fifty-ninth floor of the JW Marriott, which was the headquarters for our Wharton Fellows Conference. You can look in four directions as far as the eye can see and you see nothing but spectacular high-rises. At night it looks like Las Vegas: All the buildings are lit up, they look like rocket ships going off. It looks like the Fourth of July. It is absolutely incredible what they have accomplished.

And we, on the other hand, are arguing over Sarbanes-Oxley, stem cell research, an archaic tax code, social security and health care — and I could go on and on. They’re all very important issues, but we are paralyzed by these issues and we are not growing. It is reminiscent to me of what probably took place with Great Britain not watching the United States — when the United States went flying by Great Britain. [China is] going to go flying by us and we’re going to wake up one day and say, “Oh my God, look what we missed.” That was my take away from China.”

I think Mr. Marshall’s observation and his sense of urgency are very valid. China is growing at a breathtaking speed. Things change in a matter of days. Yet people here are still rumbling about “human rights,” “Internet censorship,” “intellectual property,” when it comes to China. It’s not that these issues are not important, they are just so out of sync with the reality of China these days; or at minimum, they account for a small percentage of what’s going on there. As Mr. Marshall said: “Their goals are to get one billion, 300-500 million people educated, clothed, housed and fed. Intellectual property rights are not on their radar screen and [won’t] be.”

I also think Mr. Marshall’s comments are brilliant: “We’re trying to play a basketball game with a basketball, and they’re trying to play a basketball game with a football. It’s a different set of rules. We better realize that it’s a different set of rules and that they’re not going to play by our set of rules.”

It is a wake-up call for Americans, as Marshall further pointed out: “I think that it’s very naïve for us to have our congressmen arguing about how we’re going to punish China for not letting the Yuan float; and how we’re going to punish China for intellectual property rights. When [China is] sitting there with $1.3 trillion of our Treasury bonds, you’re not going to punish anybody.” Perhaps America has been in dominance in the world for too long. I hope Americans won’t learn the British lessons the hard way.