China is far more than just another Asia Inc

John Ridding – The Financial Times

Published: March 3 2005 02:00 Copyrite The Financial Times
It has become a rite of passage – and generally a curse – for dynamic Asian economies to attract the label “Inc” in books that predict how they will transform the world order.
After Japan Inc in the 1980s, shortly followed by Korea and the other regional tigers, economic pundits are now in awe of China’s rise and a batch of new books is analysing the impact of “the next superpower”.
Two of these books rightly portray China’s economic resurgence as very different from that of earlier Asia Incs. Rejecting tired notions of uniform formulas or “Asian values”, they recognise the complexities as well as the undoubted scale of the upheaval it is causing.
Both books have their breathless moments. But then some of their claims are breathtaking. According to Ted Fishman, almost as many Chinese study English as a second language as there are English-speakers in the US, Canada and the UK combined. Oded Shenkar adds that Wal-Mart imports more goods from China than do Britain or France.
Beyond the big numbers, and of greater importance, is how these books assess the nature of China’s resurgence and why, to quote Shenkar, it “has more in common with the rise of the United States a century earlier than with the progress of its modern-day predecessors”.
China’s relatively open domestic market is a crucial consideration. Whereas Korea and Japan became synonymous with protectionism, multinationals have flocked through China’s more open doors.
For both authors the implications are substantial. “China is the only country in the world where domestic automotive makers maintain equity ventures with competing foreign partners which make it possible to learn best practices from both and end up with potentially more knowledge than either,” writes Shenkar.
The lure of the mainland market also helps explain the apparent contradiction between a business environment rife with piracy and $50bn (€38bn) plus of annual foreign investment.
Shenkar charts a compelling course through the impact of China’s awesome production base – through international retail markets, prices, consumers and ultimately into social divisions in the west. The coincidence of huge-scale, low-cost production and the consolidation of global retailers, he argues, has accelerated and amplified China’s impact. “They [retailers] have the market presence to sell an untested brand,” he writes.
The flood of consumer goods into global markets and the opposite flow of capital to China creates divisions and tensions at the social and political level. Toyotas were once hacked to pieces in Detroit as part of a “buy American” campaign. However, as Shenkar argues, the scale of investment by multinationals in China, the importance of outsourcing for cost-competitiveness and the price benefits for consumers suggest any meaningful “anti-China” coalition is now unlikely.
Both books demonstrate how the range and depth of interactions between the US and Chinese economies reduce the constraints on China’s rise. But if the theses are similar, the styles are rather different. Whereas Shenkar, an academic, builds a more theoretical case, Fishman, a journalist, has a magpie’s eye for the interesting fact and a few big ideas. Thus, he suggests that the US will be disadvantaged by its lack of Mandarin speakers, citing a recent count of just 50,000 Chinese language students in American high schools. “One must ask who will be the better global managers – native speakers of English working in China who rely on their bilingual local managers or Chinese managers who can deal with their workers directly.”
Where both books fall short is in assessing the flaws in the Chinese system. China’s rise may well be different from that of Japan and Korea. But it is worth remembering that their “unstoppable” marches halted abruptly amid much hubris. In Korea, the Asian financial crisis revealed corrupt allocation of credit. Japan turned out to be sclerotic.
Many of China’s faultlines are strikingly similar to those that derailed its precursors. Its banks are hobbled by bad loans. And, as with Korea’s tumultuous transition to democracy, China’s economic rise could carry the seeds of its own destruction through the social divisions and expectations it creates.
These are important omissions, even within the books’ own terms of reference. For a Chinese crash could pose as big a global challenge as the continued rise they predict.
The writer is the editor of the FT’s Asia editi

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