"Remember, when you are one in a million in China, there are 1,300 people just like you"
- Microsoft China
15 years ago, China entered the world market and the global economy has been profoundly different ever since. A country of 1,300,000,000 people, the Asian giant is no longer content merely competing against American business. It is now playing to win.
To say China is an economic giant is to understate the obvious. Chinese buildings are newer than North America's, the citizenry's entrepreneurial spirit is robust and the Country is blanketed by a mobile and broadband technological infrastructure that is unparalleled by any American city. Chinese businesses have virtually no legacy costs such as retirement and health care benefits, are able to employ low wages that people are willing to accept for the dignity of a job and, with the recent opening of the textile markets, are competing against age-old unproductive Western factories that have little to no chance of producing a cheaper product in the absence of government subsidies.
China's growth shows no signs of slowing down, in fact, the opposite is true. China's growth will continue because of two underlying structural strengths that do not show any sign of reversing course.
For starters, China has, for the first time in its history, been able to retain its top human capital. In previous years top graduates from around the world looked to the United States for opportunities and success, a fortuitous circumstance that allowed US businesses to have their pick of the best and the brightest minds while, at the same time, acted as a crutch for a defunct American education system that failed to produce same. There was simply no driving need to produce the best and the brightest minds internally when they could be easily recruited.
In recent years, China, once the producer of garments and other low end merchandise has refined its production processes and has become a premier design centre for an increasingly sophisticated and high quality array of products. Now, China is as likely to design high level microprocessors as it is socks and undergarments, a fact that has had a profound repercussion on recruitment statistics. Chinese minds can now find domestic employment in high-level design positions without leaving their home country and they do so with increasingly alarming frequency.
Like China's top minds, Chinese top entrepreneurs have traditionally looked to America as the land of opportunity. Unfortunately for America, in recent years, opportunity has become a global landscape. Increasingly, Chinese entrepreneurs find that they can make it in their home county without having to go through the tedious process of learning a foreign language and culture. Employed citizens make wealthy consumers and today's China is nearing full employment. For the first time, China is now seeing the emergence of a domestic consumer base that can rival its American rival. Put simply then, China's 1.3 billion people have new wealth and a high rate of domestic savings, they desire new ways to spend their money and Chinese companies are ready and willing to help China's citizens achieve that end.
The circumstances described above, do not augur well for the United States of America. With a domestic savings rate approaching zero percent, Americans are entirely dependant on Chinese capital in the form of government debt in order to continue to buy Asian goods and services. It is a perilous position for them and for their suppliers for two primary reasons.
First, America's housing bubble is entirely dependent on low interest rates to sustain the spectacular rate of growth enjoyed in previous years. If the global community ever lost faith in the US greenback, that is, if the American deficit continues to grow with reckless abandon - interest rates will have to rise in order to continue to induce interest in US treasury paper. A rapid rise in rates could easily lead to a recession or worse and would destroy much of the consumer confidence that currently fuels American spending habits.
Second and perhaps more ominously, the Chinese, no longer content to hold American T-Bills that can easily be devalued by political decision, are beginning to use American paper to make unsolicited bids for America's prized possessions. The recent decision of China's CNOOC Ltd to make a 19.1 Billion unsolicited bid for America's 9th largest oil and gas producer, Unocal Corporation, is proof of this same fact. Now, in the ultimate of economic ironies, the reckless tax cuts passed by the administration that were once heralded as "promoting American business activity" are forcing Uncle Sam to borrow money on the world markets. Those IOU's are then being used by global borrowers to buy American business out from under the USA's nose.
Those who respect America should not be afraid to point out when it is heading down the wrong path. George Bush may be exceptionally proud of his C+ average (http://www.whitehouse.gov/...) in university but his ignorance of global affairs comes at his country's peril. America needs to wake up. Circumstances have changed. China is a world power with its own economic might. If the USA does not stand up for itself soon and start taking the Chinese competition seriously, the USA may end up being little more than a shadow of its former self.