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China Inc.: How the Rise of the Next Superpower Challenges America and the World
Ted Fishman.
Review by Patti Mohr

Rating: ***** - Excellent Fantastic on-the-ground reporting infused with strong analysis on social, economic, and business trends.

China’s bold and vivacious entry into the global economy is at the center of most discussions about trade, international business, climate change and foreign policy. Its track record of expanding its economy by 8 to 9 percent per year is the envy of the world. But behind the economic growth is a story about human struggle, dislocation, upwardly mobile entrepreneurs as well as eternally impoverished migrants. It is also a story about fierce capitalism that challenges the world to compete in an aggressive, and perhaps defensive fashion.

Ted Fishman provides a chronicle of the societal changes going on inside China. He shows us what the rapid economic growth looks like from an insider’s point of view. He takes us to the streets of Shanghai, where urban professionals look down their noses on shabbily dressed migrants peddling earthworms. He takes us to Shenzhen, where women from the countryside have come to sleep 10 to a dorm room and work 70 hours per week manufacturing bras and other goods. And he takes us to Wenzhou, Zhejiang where a network of private financiers and local entrepreneurs pushed the limits of China’s former strict controls on business to create a bustling manufacturing base.

These stories and others provide a backdrop understanding Chinese society, and they illustrate what economic development looks like on both a minute and grand scale. One thing is strikingly clear from start to finish: China’s is undergoing massive structural changes that are as disruptive to the population as they are beneficial for the economy. Moreover, China’s rise has a significant and irreversible impact on the way the world does business, hires workers and buys products. China matters.

Domestic Challenges

A recent U.S. national intelligence report predicted that “few countries are poised to have more impact on the world over the next 15-20 years than China.” China has the world’s largest population and is likely to have the second largest economy by 2025.

The report warned that internal and external tensions could arise if the Chinese government fails to manage social pressures derived from growing income disparities or if foreigners stop seeing China as “the country of the future.” The report suggests that it is essential that Chinese leaders to balance its need to sustain economic growth with its hold on monopolistic power. It’s a point that foretells a lot even if it does not explain itself.

China, Inc. gives one a better sense of the magnitude of the domestic challenges faced by the Chinese government. Economic growth has been steady and strong, but it has not occurred evenly. China’s cities are the epicenters of the potential discord between newly rich capitalists who pay high rents for Shanghai and Beijing high rises and migrants from rural communities who barely survive on the bits of yuan they receive for selling old goods.

Fishman writes that the Chinese “seem to be tolerating the tremendous dislocation they are undergoing,” at least for the time being. But the model of capitalism with Chinese characteristics has yet to be fully tested by time.

Migration

Just 30 years ago, 70 percent of China’s labor force worked in the agricultural sector in rural areas. By 2000, only 45 percent of Chinese workers remained in the agriculture. Fishman provides rich descriptions of the migrants who make their way to the burgeoning cities to find a better way of life. Some make it big in China’s large and crowded cities. Some barely endure. And others return to the rural countryside to places Fishman calls “hell.”

The migrant stories are significant from an economic perspective as well as from a socioeconomic view. Migrant workers send as much as $5 billion per year back to rural communities, which would likely not survive without the remittances. Their stories underpin the account of the Chinese miracle. For they tell not only of the economic opportunities that exist in the new China, they also speak to the country’s long history of discriminating against its massive rural population. Fishman likens that the urban-rural divide to South African apartheid or U.S. slavery—conditions with long policy roots that pose problems of cohesiveness and unrest. He notes that the countryside is a “misery inflicted by greedy, tyrannical local officials” who misuse their power and abuse local peasants. How China deals with the urban-rural divide is likely to speak to the country’s ability to maintain its economic model. The current system relies on manpower—both male and female—desperate enough to work for next-to-nothing. As Fishman writes:

“And like all mill towns that depend on migrant women, and to a lesser degree, men, the whole point is to build workforce that will not find its bearings, cannot organize, and will, as a whole, stay cheap for as long as possible.”

Fishman’s migrant stories remind us that global economic restructuring driven by the need for “rock bottom” prices have a “profound impact on people.” Though it is sometimes easier to view the China miracle through an explicit economic lens, the human interest stories are often more powerful indicators for predicting whether China can sustain its economic gains and advantages.

Nevertheless, Fishman also provides a deep and compelling explanation of China’s rise as an economic power.

Friend or Foe?

As the world looked for market efficiency and inexpensive consumer goods, China responded by providing ample cheap labor, land and resources.

Fishman’s explanations of China’s competitive advantage in manufacturing are both detailed and conceptual. His stories of the “China price” provide a better context for understanding why so many U.S. businesses have moved operations to China. The country not only offers an advantage by offering a low-cost manufacturing base and access to “an incredible local market,” it creates a fiercely competitive trading environment in which only the “strongest and smartest survive.”

The brutally competitive environment that forces businesses to take new cost- and profit-cutting actions each year means that many company managers feel compelled to move operations to China. But, as Fishman points out, those moves come with plenty of risk. Companies might lose proprietary advantages as their Chinese partners and competitors copy their products. Fishman writes that “China continues to drive down the prices of goods it makes, even while learning to make them better.” He suggests that China’s lax intellectual property laws and enforcement mechanisms operate as “an enormous state subsidy.” He is likely right. He also makes a good point about standards and quality. He notes that quality counts higher than price for some companies, such as Signicast, which has refused to move operations abroad.

It is important, however, that the “China price” might prove to be unsustainable. As an August 2008 U.S. News & World Report article demonstrated, Chinese manufacturing jobs are also vulnerable to global competition. The “vicious cost squeeze” that forces Chinese factories to operate with little to no profits is proving to be too costly for both employers and employees. In 2008, as many as 10,000 factories in the Guangdong province shut down.

Integration is the Only Answer

China’s domestic challenges are noteworthy not only for the Chinese, but also for the West and the rest of the world. As China: The Balance Sheet notes, the more that Beijing focuses inward, the less it will be inclined to carry out “adventurism” abroad. The authors further note that China’s domestic problems represent opportunities for the West as well as challenges. China’s integration in the world economy poses exceptional competitive challenges for businesses near and far, but integration with the Chinese economy offers benefits as well as costs. I agree with the authors that the West needs to maintain interdependent relationships with China rather than fall back on viewing the China challenge through a lens that only illustrates the competitive danger that the economic rival poses. The West cannot “fall back on” a hostile posture toward China or any other rival that uses aggressive means to achieve market share.

The China “threat” or “China price” is not a China-specific phenomenon. Rather Chinese competition merely is just one example of a global trading system that rewards fierce competition. The key for the West, and for that matter any country, is in adapting to the rapidly changing global environment, establishing new trading rules when necessary to root out new forms of protectionism that produce goods below costs, and managing trade to reward and recognize quality as well as efficient prices.

References:

NIR 2008 http://www.dni.gov/reports.htm
China, Inc.
China’s Development Strategy: The knowledge and innovation in perspective. World Bank (2000).
Mooney, Paul. “An Industrial Downsizing: Many factories close as China tires of being the world’s junk maker.” U.S. News & World Report. August 4, 2008.
China: The Balance Sheet. Pg. 8

 

 

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