The US did not quite ‘rebuild China’. The facts show why

  • Winston Mok says US-China exchanges in trade, labour and knowledge are two-way streets – China is not the only party that benefited
  • Moreover, China’s own strengths in infrastructure building, human capital and high savings rates all played key roles in its development
PUBLISHED : Wednesday, 14 November, 2018, 3:17am
UPDATED : Wednesday, 14 November, 2018, 6:25am

Did the US “rebuild China” over the past 25 years? Perhaps not in the same way that Germany and Japan were rebuilt with American aid after the second world war. Learning from the painful lessons of how the end of the first world war led to the beginning of the second, the US was a magnanimous victor, and helped to launch unparalleled prosperity in the post-war order.

For that, the world should be grateful, even if US actions were partly shaped by cold war considerations.

If the Chinese civil war had ended differently, the US might well have supported a Nationalist China with a massive reconstruction programme bigger than the Marshall Plan. But that was not meant to be – and what US aid there was went to its major foe, instead of its key ally, in the Pacific war.

Engagement by the US government and companies in China has been driven by political and economic calculations – containing the Soviet Union and exploiting China’s cost advantages. While there is no doubt that the US contributed to China’s economic development, the overstretched claim that it was the US which rebuilt China can be refuted on many fronts.

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First, it’s important to note that the US-China relationship is mutually beneficial. Just as the US played a part in Chinese development, so China, too, helped boost US competitiveness. US companies could have stayed at home or gone elsewhere. They made China their key manufacturing location only after determining that no other country could offer the same benefits. Many US firms consolidated their supply chains from other Asian locations to China.

How big a role did US technology play in China’s rise? No doubt, Chinese companies learned from their foreign partners. But US companies were not alone among foreign firms in China – many Asian and European firms were there first. And US companies were not leaders in some fields, such as the auto industry, where German and Japanese companies are stronger. Attributing China’s rise to US technology is a very bold claim, bordering on the delusional.

Second, aggregate trade deficits in the US are inevitable, given its low savings rate – both public and private. The question is with whom. By contrast, Chinese workers save. Arguably, all China got from its hard work are some “IOUs” issued by the US government. Instead of the US “building” China, a more accurate picture is perhaps of Chinese workers sustaining the profligate spending in the US.

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Third, China’s strong foundation in human capital is a key factor in its development. China was able to exploit globalisation with its well-trained workforce, the foundation of which was laid long before US companies entered China. Ahead of more developed countries, and unique for a poor country, China achieved near universal primary education before economic reforms started. Moreover, China was able to use its entire workforce, while Japan and South Korea were using effectively only half of theirs in their patriarchal societies. In many ways, China was built by its own skilled workforce.

Fourth, China’s solid infrastructure is also a key competitive advantage. This, together with its skilled workforce, makes China a favoured manufacturing location, one not easily replaceable even in the midst of the US-China trade war. Export earnings played a role in financing China’s infrastructure in the early days of its economic reforms. In this century, the bulk of China’s infrastructure was financed at the local level, by land sales or collateralisation. US-China trade was among several factors that sparked China’s growth but was far from the key fuel behind China’s spectacular infrastructure development.

For these and other reasons, it is far-fetched to suggest that the US rebuilt China, as both US President Donald Trump and Vice-President Mike Pence have done.

They might also have more empathy when making such statements. While US consumers fill their large homes with all kinds of made-in-China consumer products at low prices, Chinese workers have toiled in harsh conditions. Parents who sought work in urban centres were separated from their young children. Villages became cancerous from industrial pollution – as polluting industries were outsourced from developed nations. China’s workers paid a great human and environmental price for its development.

China’s emergence as an economic powerhouse could not have happened on such a scale and at such speed without US-China interactions in trade, technology and knowledge. But this was hardly due to US benevolence or China’s guile. It was a win-win bargain for both sides – perhaps much more in favour of US consumers and industries than China’s.

Amid China’s rise, the US still has some key advantages. Its population is growing, thanks to immigration, while China’s birth rate is in decline. America’s economy and society remain the most innovative in the world. Instead of attempting to maintain its relative lead by trying to keep China down, Washington can better serve its citizens by building on America’s core strengths while continuing to leverage China, as much as China has leveraged the world in its development.

Winston Mok, formerly a private equity investor, is a private investor