China Takes Off

David Hale and Lyric Hughes Hale

From Foreign Affairs, November/December 2003

Article preview: first 500 of 6,720 words total.

Summary:  China has achieved stunning economic progress since the 1970s, thanks to aggressive liberalization, a commitment to exporting high-tech goods, and a massive injection of foreign investment. Although this unprecedented success is understandably unnerving to China's neighbors and trading partners, it should not be cause for worry; China, the United States, and the rest of the world still have lots of business to do.

David Hale is an economist and Chair of Hale Advisers, LLC. Lyric Hughes Hale is Publisher of www.chinaonline.com.

CHINA'S ECONOMIC EXPLOSION

Few nations have changed as fast -- or as dramatically -- as China has since the 1970s. The world's most populous nation has radically liberalized its economy and gone from producing low-quality and simple exports to sophisticated high-technology goods, while nurturing a vibrant private sector and attracting nearly $500 billion in foreign direct investment (FDI). The country has turned into a formidable exporting machine: China's total exports grew eightfold -- to over $380 billion -- between 1990 and 2003; and its exports in the electronics industry now account for 30 percent of Asia's total in that sector. China's share of global exports will reach 6 percent in 2003, compared to 3.9 percent in 2000. Last year, China accounted for 16 percent of the growth in the world economy, ranking second only to the United States.

There is no question, therefore, that China's emergence as a great economic power will rank as one of the major issues confronting world leaders in the next few decades and that its progress demands careful analysis. To start, it is worth examining China's winning strategies -- economic liberalization, a focus on high technology, and its resolve to become a regional leader -- as well as its challenges -- the widening gap between its urban and rural populations, growing unemployment, and the increased challenges posed by its aging population. Next, it is important to consider the effects that its stunning success has had both at home and abroad. China's progress has unnerved many of its neighbors and trading partners: Asian countries worry about losing their competitive edge, especially in high-technology markets; in the United States, concern has been mounting over the country's considerable -- and growing -- trade deficit with China.

Beijing has tried to assuage its neighbors' concerns by spearheading a project to create a regional free trade zone and tightening economic cooperation in Asia through local mechanisms. But its goodwill gestures have not put everyone at ease, and the United States, Japan, and South Korea have asked it to revalue its currency. Although China is unlikely to oblige anytime soon, and the currency question is likely to garner still more attention, it should not distract from the essential point -- that China, the United States, and the rest of the world still have much more business to do with one another.

OPENING THE DOOR

Thanks to dramatic progress in technology, transportation, and communications systems, China will wield far more power in the global economy the next time it peaks than it did on the eve of Europe's Industrial Revolution, in 1820, when it accounted for as much as 32 percent of the world's economy. Beijing now has "soft power" and growing diplomatic clout to buttress its economic and political strength. It expects to launch its first manned space mission, Shenzhou 5, this fall. China is also better prepared to be a world leader, because its new elite is not isolated from the Western world, as were preceding Chinese leaders. ...

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