is China a Bubble, And Can It Burst? Without a doubt,
there is a huge amount of waste in the Chinese economy.
No one can even begin to quantify this waste. Also,
a good amount of the growth is dumb growth - investments
which are not efficient and do not make economic sense.
Chinese businesses, for example, are tremendously wasteful
of energy, which is a major factor in the recent rise
of oil prices, not to mention pollution and environmental
damage and costs. Because the government is the sole
importer of oil, it keeps prices artificially low, leading
to waste and excess demand.
there is a bubble and it did burst, it would be safe
to say that the whole world economy would be affected.
The central banks of the Asian countries are financing
the debt of the US economy, and US interest rates would
have to go up precipitously to make up for the sudden
fall in demand. This would send a catastrophic ripple
effect not only through the US economy, but through
the whole global economy.
to the 1980s, the global economy is much more tightly
interdependent. From an economic point of view, it doesn't
even make sense to talk about national economies because
the relationships are so deep. It is safe to say that
if China's economic growth continues at the current
pace, the world's center of growth for economic activity
will shift from the United States to China and East
Asia in the next decade. The trends show that China
has already replaced the United States as Taiwan's,
South Korea's and Japan's single largest trading partner.
Challenge for Non-Chinese Companies
In the mainstream media, it is taken for granted that
Chinese companies pirate American, European and Japanese
quality goods and sell them at prices much lower than
they can compete at. How can non-Chinese companies possibly
compete in a market where the rules are unclear and
subject to change?
great barrier is the culture and language. Most American
companies have relied on ethnic Chinese from Taiwan,
Hong Kong and China for their local management teams.
Now though, China is showing signs of becoming such
an important market that it is insufficient that knowledge
of China and the Chinese market be confined only to
the country management level.
so far, American companies have been slow to adapt to
globalization, and most company boards have comparatively
little international experience on the operational level.
Compared to Europeans, who have much experience dealing
with different languages and cultures, American businesses
are at a disadvantage. Add to this the climate of fear,
especially with regard to "foreign" things,
engendered in the United States after 9/11, and one
gets the picture that many US companies and individuals
have chosen to withdraw into their own cocoons, instead
of engaging the world.
to this are worrying economic trends which do not work
to the advantage of the United States. The current US
trade policy is unclear and lacks a clear focus. While
Chinese companies have been aggressively moving up the
ladder from low-quality, low-cost products, most US
efforts have focused on the protection of intellectual
property rights for the main US entertainment firms.
These companies are facing a dying business model in
the United States, having largely failed to find a new
way of making money with the arrival of internet distribution
what is the single largest economic category which the
United States sells to China by value? Soybeans. In
contrast, the single largest category of products which
China sells to the United States is electronic products.
You don't need to be an economist to see that there
is something wrong with this picture. How can the United
States, which has the single largest economy in the
world, have soybeans as its single largest commodity
for export to China? There are other economies which
sell soybeans to China, including Brazil, Argentina,
Canada and Australia. Obviously, something is going
to have to change.
the quest to cut costs and increase profit margins,
the US government and many American businesses have
outsourced manufacturing - and now many services - to
China. Outsourced manufacturing has helped the Chinese
to improve their manufacturing skills and to update
their plants, which are now the most modern in the world.
This, in turn, has raised the Chinese standard of living
and led to the growth of China's domestic market as
investment money has flowed into the country.
it leaves a huge, gaping question: "What are Americans
good at, and how do American products and services create
value for Americans?" Compared to China, the US
economy is much more dependent on services. Traditional
economic theory tells us that a country goes through
three different stages of development: first agricultural,
then manufacturing and then services.
are becoming a globalized economy where national boundaries
are blurred (witness the European Union) - which means,
at its most basic, that there is no difference between
domestic and international economies. When the difference
between a domestic and international (overseas) economy
blurs, the only significant differences are in language
and culture. Right now, this is where US businesses
are at a significant disadvantage - but it can be changed,
and it must change.
does this mean for non-Chinese suppliers of services
to China? What opportunities are there? Is it possible
for them to survive against notoriously price-aggressive
Chinese companies? The good news is yes. It is possible,
but it is going to be hard work. For Americans and American
companies especially, it calls for a new way of thinking.
For many American companies, which like quick fixes
and easy solutions, the bad news is that there aren't
any. This is a long-term process which will require
American consumer and economy have been the engine of
worldwide economic expansion since the end of World
War II. Because of the tremendous power, strength and
vitality of the US economy, American companies have
been largely able to dictate how business was done.
The same was true of the American consumer, whose spending
habits and tastes have been so influential worldwide.
That phase has come to an end. With the consolidation
and expansion of the European Union and the rise of
China, global business rules and consumer tastes will
be much more varied and dynamic.
American companies, it means that they will no longer
be able to take it for granted that business is done
"the American way." For large multinationals
which are used to selling their products and services
in many different markets and which employ the best
and the brightest from all over the world, this is no
big deal. But now the challenge is also faced by small
and medium-sized companies. These have quickly found
that because of new trade regulations from the World
Trade Organization and the enabling technologies of
the internet, all of a sudden they need to compete on
a worldwide basis.
are major Chinese trends which companies can capitalize
on to establish a foothold in the Chinese market. Here
are a few: