More gains than losses for US from China, say authors
As President Hu Jintao prepares to visit Washington in two weeks, American complaints about unfair mainland economic competition are getting increasingly shrill. However, a book examining the United States-China relationship to be published just before Mr Hu's arrival should help put the record straight.
Authored by heavyweight thinkers from the Centre for Strategic and International Studies and the Institute for International Economics, both in Washington, China: The Balance Sheet* weighs up the impact of the mainland's emergence on the world at large and on the US in particular. Its conclusions, at least as far as the two countries' economic relations are concerned, may surprise some of Washington's more strident China-bashers.
The book's authors credit the stunning pace of the mainland's economic growth over the past quarter-century to five relatively straightforward factors: Beijing's willingness to embrace market forces; its openness to trade and investment; the mainland's high savings rate; the big switch of labour away from agriculture to industry; and finally, the mainland's high literacy relative to other emerging economies.
Together, these have boosted the mainland's economic output per head ninefold since Deng Xiaoping initiated reform at the end of the 1970s and lifted the country into third place among the world's trading nations.
The rapidity of this rise has prompted concern in the US, much of it centred on the growth of the country's trade deficit with the mainland, which reached US$202 billion last year, up from nothing 20 years before.
The book's authors examine the underlying causes of this imbalance and promptly dismiss several commonly advanced explanations.
Contrary to popular belief in the mainland as an arch-mercantilist, they find Beijing does not significantly restrict foreign access to its own markets. In fact, it has effectively eliminated import quotas and today imposes average tariff rates well below those charged by other emerging economies including India, Brazil and Mexico. As a result, the country today imports three times as much relative to the size of its economy as Japan and is the fastest-growing export market for US companies.
The book also gives short shrift to the idea that it is impossible for US businesses to compete against cheap mainland labour. Although average wages in the mainland are about 3 per cent of the US level, the book points out that on average mainland workers are 28 times less productive than their American counterparts.
Low pay does give the mainland a competitive advantage in some unskilled, labour-intensive industries such as textiles, but these have long been in terminal decline in the US.
The authors are also sceptical about allegations that the low valuation of the yuan is to blame for the US deficit with the mainland.
They note that for much of the 20 years during which the deficit has been growing, the yuan was actually considered overvalued rather than undervalued.
Today, the cheap yuan may be exacerbating the size of America's deficit but should not be cited as the cause of it.
The biggest factor behind the bilateral deficit, they say, is the wholesale moving of low added-value assembly plants to the mainland as other countries focus on higher-margin businesses.
The book cites the example of notebook computers. In 2004, the US imported 11 million notebooks bearing 'Made in China' stickers.
Typically, these were assembled in Taiwanese-owned plants and contained US-made processors, Japanese hard disks, Korean display screens, sound cards from Singapore and US software. The mainland contributed no more than 30 per cent of the products' final value.
As a result, the book's authors - not previously known for being soft on Beijing - conclude there is no need for new US legislation to address the deficit with the mainland. Similarly, they find little cause for concern over mainland takeovers of US firms or Beijing's purchases of US government debt.
Although they concede some US workers have suffered from the moving of factories to the mainland, they argue the industries that employed them were already in decline. On balance, the authors say, America gains far more than it loses from the mainland's economic emergence, with the average US household benefiting an estimated US$625 a year.
*China: The Balance Sheet, Public Affairs Press, April 2006.
