Ten Things You Should Know About China

1. Antigovernment U.S. “experts” have incessantly assured us of an imminent Chinese slowdown or collapse. But the pace of China’s development accelerated after it was admitted to the World Trade Organization in 2001. Since then, China’s economy has grown four times faster than the U.S. and twice as fast as the rest of the world.
2. China is now the world leader in producing computers, mobile phones and most other electronic equipment, as well as a widening array of more traditional manufactured goods. Next year it will likely surpass the U.S. and Japan to become the world leader in auto production. Despite constantly false “news” reports, virtually all autos sold in China are made in China, and although many are foreign brands (Volkswagen, Buick, Toyota), ALL are made in plants where China’s state-owned firms have controlling interest.
3. There are now over 600 million mobile phone accounts in China—all in government-owned firms—and they are increasing by as many as 9.5 million per month. Taking advantage of this immense, captive market, China just launched the use of a long-awaited, government-owned telecom standard, TD-SCDMA, to compete at home and abroad with the standards used in the U.S. and the rest of the world.
4. Already, more Chinese than Americans use the Internet, and the potential growth—and China’s influence—is enormous. China’s government has shifted its powerful strategic focus for future growth away from manufacturing to high-quality professional services.
5. Over the past decade, China transformed its state-controlled companies into some of the largest, most sophisticated companies in the world. Almost entirely state-controlled, China’s financial services sector was believed by deregulation extremists to be a basket-case in 2001. Today, the major concern of China’s highly profitable financial services firms is their relatively small holdings of U.S. subprime housing debt. The biggest global financial firms are now eagerly sending their best talent and their best product ideas, paying premium prices to acquire the legal limit of 20 percent minority “partnership” in China’s financial institutions—just as manufacturing firms have done for the past 20 years. The Industrial and Commercial Bank of China surpassed Citigroup last year to become the most highly capitalized in the world. China now has several financial firms in that league.
6. Economists normally expect countries growing faster than the world economy to import more and export less, thereby having current account trade deficits. Yet despite its soaring growth, China’s global current account surplus rocketed from $17 billion in 2001 to $372 billion in 2007. China imports so much oil and other non-manufactured raw materials that even its overall surplus in current accounts or goods trade obscures the even more remarkable surplus for manufactured goods, which reached $401 billion last year and will likely exceed $500 billion in 2008. China was the world’s largest manufacturing exporter last year and the largest exporter of goods to the U.S.. Because of rising prices for imported oil, iron ore and other commodities, China’s overall global trade surplus is down about 11 percent in 2008, but its manufacturing surplus is up over 30 percent! [1]
7. China has accumulated global current account surpluses of $1.1 trillion since 2002. These current account surpluses, strong foreign investment in China and other factors, has built China’s war chest of foreign currency reserves [2] from $212 billion at the start of 2002 to almost $2 trillion now. In April alone, China added $103 million each hour to its foreign reserves. Together with China’s newly restructured and healthy financial system, and their large firms’ new access to equity and bond markets, China is now uniquely capable of cherry-picking today’s worldwide “fire sale” opportunities for patents, talent, natural resources, brands, distribution channels and much more.
8. An important indicator of China’s modernization is the loss of the long-held U.S. surplus in advanced technology products. Globally, the traditional U.S. surplus in these products turned to a deficit for the first time in 2002. Since then, the U.S. has suffered advanced technology product deficits that are far larger than any past U.S. surplus. China accounts for more than the entire U.S. global deficit in these products—concentrated in advanced machinery and electronics. U.S. import payments for advanced technology products from China are almost four times as much as export earnings. The U.S. deficit in this area with China is more than eight times the U.S. deficit with Japan, 35 times the size of all U.S. intellectual property earnings in China, and 10 times the size of all reported U.S. corporate profits in China.
9. The weakness of the U.S. dollar affects trade and investment flows. From the time China was admitted to the World Trade Organization until now the Chinese yuan was allowed to strengthen somewhat against the dollar but most other currencies strengthened far more against the dollar. That is, since 2002, the yuan strengthened somewhat against the dollar but it weakened slightly against the Japanese yen and it has weakened sharply against the euro.
10. Whether in the Olympics or in the competition to create good jobs with a promising future, a winning plan and strategy is usually essential. China has such a plan; the U.S. does not.

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