Don’t Pick on China

China Economic Review,
Vol. 14, No. 2, 2003, Minneapolis

In 1999, Li Zhaoxing, then China’s ambassador to the United States, gave a speech in Washington that stressed a familiar Chinese theme: its noninterference in the affairs of other nations. Afterward I told him that if China was truly serious on this point, it had better stop lowering tariffs and liberalizing its economic policies, because the competitive effects of Chinese reform were making life difficult for policymakers elsewhere. He smiled and moved on to another comment.

China has kept to the road of structural adjustment and market-oriented reforms for about 25 years and continues to lower trade and investment barriers. As a result, it has grabbed market share and foreign investment from nations that chose to reform more slowly or not at all.

In other words, China’s achievements have moved it to the head of the class. Naturally, the rest of the class will grumble. While other countries should be holding China up as proof that policy reforms matter, commerce officials in the United States and elsewhere are instead lambasting the country as an unfair trader. But can the motive for chastising China really be defense of free trade? No, given the hundreds of billions of dollars of agricultural subsidies in the developed world or the management of trade in steel, textiles, apparel, and maritime services, to name a few. The real motivation is fear of how competitive China has become by embracing a market-friendly recipe for reform.

China critics have lost sight of the big picture. By focusing on what their countries lose when China does well and how hard it is to compete with Chinese exports, they ignore the gains they could enjoy if they were to adjust to China’s growth. Many European, Asian, and U.S. businesses — large and small — are getting to know China, rolling up their sleeves, and making money.

In a recent article in the quarterly China Economic Review (published by the Washington-based Chinese Economists Society), economists Tilak Abeysinghe and Ding Lu of the National University of Singapore proficiently paint that big picture. Titled "China as an Economic Powerhouse: Implications on its Neighbors," the article correctly identifies how domestic consumption has fueled China’s growth — as distinct from most Asian tiger economies, which have relied mainly on exports. "This trend implies a faster growth of China’s imports relative to its exports," write the authors, "producing tremendous opportunities for exporters in the region." The authors argue that China’s emergence can be a blessing, not a death knell, for other economies.

Other analyses — for example, by the Asian Development Bank — have also shown that Southeast Asian exports will rise as reforms spur further growth in China. Abeysinghe and Lu provide additional clarity by pointing out Japan’s fading role as a growth engine in Asia. After showing how domestic demand is driving China’s economy, the authors demonstrate that China’s rising imports from the region and the world will be consumed by Chinese citizens, not just reprocessed for export.

When it comes to identifying which of China’s neighbors will prosper and which will not, macroeconomists such as Abeysinghe and Lu are less helpful. They accurately refute the notion that China’s growth is a zero-sum game. But although they say that Southeast Asian nations will find lucrative manufacturing niches for export if they don’t fall behind technologically, they don’t explain how to avoid that fate.

Ultimately, however, Abeysinghe and Lu keep the right picture of China in mind — one of prosperity and contribution to global growth. Which raises a final thought: What if that brainy kid who annoyed the rest of the class had been the United States? In fact, it was. The United States was by and large a net merchandise exporter from the 1870s through the 1960s. If the world powers had conspired to isolate the United States for its "unfair" advantage — all those migrant workers willing to toil with insufficient labor rights — or pulled it back into line so that U.S. entrepreneurs wouldn’t threaten European manufacturers, then the United States would not be the engine of global growth and buying power it is today. China has taken itself out of the category of those basket-case economies that cannot improve the welfare of their citizens and which nurture resentment instead of hope. For that, the rest of the world should be grateful.