Thoughtful Article on Chinese Economy

This article in the New York Times is an interesting and balanced analysis of China's economic growth vis a vis trade with the USA. Sorting out the big picture of China's economic ascension can be puzzling whether you are on either shore or bystanding on another continent. It's the horserace of the century and attracting substantial bets.

A cliche like "China is like Japan in the 80's" makes good lead copy, but fortunately the author, an award winning second generation journalist, drops the cliche-mongering right there and goes on to point out the more revealing differences between Japan in the 80's and China in the 21st century. And what I like even more about this article is that it does the inevitable wage quoting of how a factory worker earns $60 to $75 a month but goes on to explain that while this is a pittance by American standards it is a substantial take where these girls come from, a 30 hour bus ride away in rural China, where hundreds of million live on less than $1 a day.

March 2, 2004
Like Japan in the 1980's, China Poses Big Economic Challenge
By KEITH BRADSHER

GUANGZHOU, China
When Japan, at the zenith of its economic power, built a huge airport in Osaka in the late 1980's, the project set off a seven-year trade battle with the United States over the nearly complete exclusion of non-Japanese companies.

China, Japan's heir as Asia's rising star, is now completing its own immense airport here in Guangzhou, the sprawling commercial center of affluent southeastern China. But the Chinese are going about it differently.

American companies designed the terminal, its air-conditioning system and the flight information system. A German company engineered the vaulting roof, a Danish company produced the boarding gates and a Dutch company, the check-in counters. Chinese women in broad-brimmed straw hats wield shovels and brooms across from a modern air-traffic-control tower designed by a company from Singapore.

The welcome that China is offering to multinational companies and foreign investment has left many Western business executives, so critical of a closed Japan more than a decade ago, enthusiastically embracing China, its cheap work force and its huge markets.

But that same openness --combined with China's vast population of 1.3 billion and military muscle-- makes it an even greater long-term economic challenge to the United States than Japan seemed to be in the 1980's, according to a growing number of executives, economists and officials.

While China's economy is still one-third the size of Japan's, the potential size of its market has made it very hard for companies to say no when Beijing officials demand that they build factories, transfer the latest technology or adopt Chinese technical standards.

Japan has effectively run out of low-wage workers for its industries, and quickly brought much of its economy up to and in some cases beyond Western technological standards. China still has vast reserves of cheap labor in inland areas and many backward industries that can grow swiftly as they copy Western and Japanese methods.

"China could do what Japan did, as a very fast follower, but China could do it bigger and better and for a longer period of time," said Steven Weber, an Asia scholar at the University of California at Berkeley. "It's not necessarily as vulnerable as Japan was."

But while Japan's danger to other economies over the last decade has taken the numbing forms of economic stagnation and political lassitude, China poses the risk of fast, sharp shocks.

I heartily recommend you read the rest. To tempt you further, here's his intriguing conclusion.

For a parable about economies that seem as if they could prosper indefinitely, Chinese officials need look no farther than to Osaka and its huge airport. The artificial island on which it was built a few years ago is slowly sinking in the Pacific.

Of course, this trope begs the rejoinder, "Yes, but China is no island."