China frightens the west, but it will not buy the world

Dalforce 1941 SG

Why China will not buy the world

By Martin Wolf

July 9, 2013 7:26 pm

The Chinese economy is marked by its dependence on others

China frightens the west. Rarely, however, do westerners look at how the world looks to China. Yes, it has made enormous economic strides. But it still sees a world economy dominated by developed economies.

Among the few westerners able to look at the world from the Chinese point of view is Peter Nolan, professor of Chinese development at Cambridge university. In a thought-provoking book published last year, he addressed one of the big fears about China – that it is buying the world. His answer is no: we are inside China but China is not inside us.

To understand what Prof Nolan means by this, one must understand his view of what has happened during three decades of technology-driven global economic integration.

The world economy has been transformed, he argues, by the emergence, through mergers, acquisition and foreign direct investment, of a limited number of dominant businesses, almost entirely rooted in advanced countries.

At the heart of the new global economy are what Prof Nolan calls “systems integrator” companies – businesses with dominant brands and superior technologies, which are at the apex of value chains that serve the global middle classes. These global businesses, in turn, exert enormous pressure on their supply chains, creating ever-rising consolidation there, as well.

Using data from 2006-09, Prof Nolan concludes that the number of globally dominant businesses in the manufacture of large commercial aircraft and carbonated drinks was two; of mobile telecommunications infrastructure and smart phones, just three; of beer, elevators, heavy-duty trucks and personal computers, four; of digital cameras, six; and of motor vehicles and pharmaceuticals, 10. In these cases, dominant businesses supplied between half and all of the world market. Similar degrees of concentration have emerged, after consolidation, in many industries.

Much the same concentration can be seen among component suppliers. Look at aircraft. The world has three dominant suppliers of engines, two of brakes, three of tyres, two of seats, one supplier of lavatory systems and one of wiring. In the motor industries, as well as information technology, beverages and many others, the world has just a few dominant suppliers of the essential components.

We can now see the organisation of global production and distribution under the aegis of the integrator company. Such a business “typically possesses some combination of a number of key attributes, among them the capability to raise finance for large new projects and the resources necessary to fund a high level of research and development spending to sustain technological leadership, to develop a global brand, to invest in state-of-the-art information technology and to attract the best human resources”.

Moreover, “one hundred giant firms, all from the high-income countries, account for over three-fifths of the total R&D expenditure among the world’s top 1,400 companies. They are the foundation of the world’s technical progress in the era of capitalist globalisation”.

These companies have invested hugely across borders, not least in China. In the process, they are losing national characteristics and loyalties. This creates growing tension, as governments find “their” companies ever harder to tax or regulate. Nevertheless, the companies still retain national characteristics and remain rooted in national cultures.

How does China fit into this new world? It is a huge development success. But it has built that success on its willingness and ability to offer its workers and markets to the world’s producers. So in 2007-09, foreign-invested companies were responsible for 28 per cent of China’s industrial value-added; 66 per cent of its output from high-technology industries; 55 per cent of its exports; and 90 per cent of its exports of new and high-technology products.

Thus, the country is a crucial contributor to systems managed by foreigners. If the citizens and governments of advanced countries look askance at these global companies, how much more so must the Chinese?

China is not buying the world. Between 1990 and 2012, the global stock of outward FDI soared from $2.1tn to $23.6tn. High-income countries still accounted for 79 per cent of this in the latter year.

In 2012, the outward stock of US investment was $5.2tn, while that of the UK was $1.8tn, against $509bn from China. China’s net stock (the difference between its inward and outward stocks) was hugely negative, at minus $324bn. In 2009, 68 per cent of its outward investment was supposedly in Hong Kong. (See charts.)

As Prof Nolan notes: “Chinese firms have been conspicuously absent from major international mergers and acquisitions.” In view of its lack of natural resources, China is investing abroad in this sector. But, even here, the scale of its foreign investments are dwarfed by those of dominant foreign companies.

What does this analysis suggest? The most important implication is that China has barely developed any globally significant companies. Moreover, such is the lead of the advanced countries’ incumbents that it is going to find it extremely hard to do so. From the Chinese perspective, therefore, the striking feature of their economy remains its dependence on the knowhow of others.

This explains China’s desperate efforts to obtain that knowledge. A further implication is that China is very far indeed from “buying up the world”. The paranoia about its impact is unwarranted.

A deeper question is whether, in a world of ever more global companies, it makes sense to worry that companies are not “yours”. I suspect the answer is: yes. China is right to worry about this. Companies still have national attachments that shape how they behave and, in particular, their role in developing a particular country’s competences.

But, for a nation as vast as China, this may matter less than for most others. In the end, almost all global companies are likely to find themselves enveloped by China: it will be too central to their activities for them to escape its demands.

If that happens, it will be because of a natural process of integration. For the future of the world economy and indeed the world, the further development of such deep global entanglements is desirable. We should keep calm and just carry on.

Ee Hoe Hean Club SG

October 6th, 2013

by Dr. Sawraj Singh

One of the characteristics of western capitalism is that it always passes through sinusoidal cycles of recessions, depressions, and recoveries. Therefore, many people think that the present crisis of western capitalism is just another temporary phenomenon. However, the present crisis is different. In all likelihood, the West will not fully recover from this and when this crisis resolves, there will be fundamental changes in the world. A new world order will emerge in which there is no western domination or American hegemony.

The crisis is not temporary because the underlying causes are not transitory, but long-standing trends. The main reasons for the decline of the West are loss of the manufacturing base and loss of the cheap natural resources of third world countries. These two phenomena have made the economic infrastructure of the west weak. Gradually, the western countries kept shifting their economies from manufacturing to the service sector. As a result of this policy, the manufacturing base was lost. The western economies became thoroughly parasitic. After colonization, the western countries gained complete control over the natural resources of the third world countries. Their economies became completely dependent upon the extremely cheap natural resources of the third world countries. The prosperity of western countries was primarily based upon the principle of uneven exchange. They sold their products at very high rates and purchased the natural products of the third world countries at very cheap rates.

Two factors changed the old equation. First, because of the loss of the manufacturing base, the western countries had very few products to sell. Second, other countries, particularly China, became big competitors for buying the natural products of the third world countries. China was able to gain access to the natural resources of the third world countries, particularly African and Latin American countries. China has greatly limited the free (and unchallenged) access of western countries to the natural resources of the third world countries. The parasitic western economies were bound to be very adversely affected by the loss of extremely cheap natural products of the third world.

Another factor which has made the west economically weak is the attack of Islamic fundamentalists upon western economic interests. The west was able to divert that attack for a time when it incited Islamic fundamentalists against secular forces and the Shia minority. The Islamic fundamentalists joined forces with the West against Gaddafi in Libya and Assad in Syria. Similarly, the western allies such as Saudi Arabia, the Gulf States, and Turkey were joining forces against Iran.

However, the defeat in Syria has not only thoroughly demoralized these alliess and Israel; it has also forced the Islamic fundamentalists to reconsider their policies. A vast majority of Muslims in the world not only hate the consumerist western culture, but also hate the lifestyles of the oil-rich Emirs and Sheikhs in Saudi Arabia and the Gulf states. They have never accepted the interpretation of Islam, which is being propagated by these western alliess. The Islamic fundamentalists saw a risk of being perceived as being in the same boat of these western allies. Al Qaeda and Ayman al Zawahiri had to come out and clearly state that America remains their biggest enemy, and hurting its economic interest remains their main goal. The recent attacks in Kenya and Nigeria show that the Islamic fundamentalists want to reestablish their anti western prerception and prove that they have not compromised with the West.

It is becoming clear that all of the factors which led to the economic decline of the west have not changed. Therefore, the trend of the economic decline of the west is unlikely to change. The west is going to continue to face growing competition from China, Russia and the developing countries on one hand, and the wrath of Islamic fundamentalism on the other hand. Under this dual pressure, the West cannot maintain its domination and hegemony for very long. I feel that western capitalism will collapse before the middle of the century. However, if it commits a blunder such as attacking a country like Syria, Iran, or North Korea (the so-called Axis of Evil), then the demise of western capitalism will come much sooner, perhaps in this decade.

The West should read the writing on the wall that its domination and hegemony of the last two centuries are not going to last in this century and will end soon. Starting a Third World War will not help; it will only hasten and worsen western decline and the suffering of the people of the world. In the first two World Wars, the contradiction between the established power and the emerging power could not be resolved peacefully because both were western powers. This time the situation is different. The established power is western (US), and the emerging power is eastern (China). Therefore, there is a realistic chance of a peaceful resolution of the contradiction between them. China has eastern wisdom instead of western arrogance. Eastern wisdom believes in coexistence and harmony. If eastern wisdom prevails over western arrogance, then the whole world can be saved. A peaceful transition from a western-dominated unipolar world to a multipolar world can be beneficial for both the East and the West.

Dr. Sawraj Singh, MD F.I.C.S. is the Chairman of the Washington State Network for Human Rights and Chairman of the Central Washington Coalition for Social Justice. He can be reached at [email protected].

http://thelinkpaper.ca/?p=32585

Ee Hoe Hean Club SG

It’s been a banner month for the oracles of American decline. The shutdown of the federal government, the prospect of a default on the country’s debt, and the political dysfunction that made the United States seem rudderless on Syria and forced the cancellation of President Obama’s trip to Asia seemed to confirm that the end of American preeminence is finally upon us.

Council on Foreign Relations President Richard Haass argued that Washington was “hastening the emergence of a post-American world.” The Guardian’s Timothy Garton Ash wrote that “the erosion of American power is happening faster than most of us predicted — while the politicians in Washington behave like rutting stags with locked antlers.” And the financial Web site MarketWatch declared: “This is what decline of a superpower looks like.”

The idea that such a moment was coming has dominated U.S. foreign policy circles since the late 2000s. The declinists warn that in light of American difficulties at home and abroad, and the rapid rise of new powers such as Brazil, India and China, we should prepare for a global order no longer dominated by the United States. Some argue that the United States should retrench and do less. Others that it should share the burden of leadership with the emerging titans.

But predicting the decline of the United States has always been risky business. In the 1970s and late 1980s, expectations of waning power were followed by periods of geopolitical resurgence.

There’s every reason to believe that cycle is recurring today. Despite gridlock in Washington, America is recovering from the financial crisis and combining enduring strengths with new sources of influence, including energy. Meanwhile, emerging powers are running into troubles of their own. Taken together, these developments are ushering in a new era of American strategic advantage.

Emerging economies were the darlings of the past decade, growing at an average of roughly 7 percent annually between 2003 and 2012. By some calculations, China was poised to surpass the United States in GDP by 2016.

Today, the picture couldn’t look more different. Brazil’s growth rate has fallen from more than 7 percent in 2010 to just under 1 percent. Likewise, Indian growth tumbled to about 3 percent in 2012, down from double digits as recently as two years earlier. Perhaps most pronounced, China’s government is revising down its official growth targets. Analysts are no longer asking whether there will be a Chinese economic slowdown but rather how hard the landing will be.

Morgan Stanley has identified five particularly fragile emerging-market currencies: Brazil’s real, India’s rupee, Indonesia’s rupiah, South Africa’s rand and Turkey’s lira. Those countries are vulnerable to high inflation, large deficits, low growth and a downturn in China. And they may soon face problems in international financing.

The political systems in emerging powers are fraying, too. There have been huge protests in Brazilover wasteful government spending and inadequate social programs. Russia looks more authoritarian by the day. And the Chinese Communist Party is stepping up efforts to crack down on journalists, academics and bloggers in what seems to be an attempt to control the discontent that accompanies slower growth and painful economic reforms.

These “rising powers” are hardly faring better collectively. The international institutions they established — BRICS, the Shanghai Cooperation Organization and IBSA — continue to disappoint.

At the same time, the United States is experiencing a turnaround of fortunes. The unemployment rate has fallen to just over 7 percent from an October 2009 peak of 10 percent. By contrast, euro-zone unemployment remains stuck at around 12 percent.

The U.S. fiscal picture is also looking up. The nonpartisan Congressional Budget Office estimates that the annual budget deficit will drop below $650 billion in 2013, the smallest shortfall since 2008 and approximately half the size it was in 2011. Meanwhile, the dollar remains the world’s top reserve currency.

Even more transformative, the United States is experiencing an energy revolution that the McKinsey Global Institute estimates could add as much as 4 percent to annual GDP and create up to 1.7 million new jobs by 2020. America is poised to overtake Russia as the world’s largest producer of oil and natural gas, and there are signs that low-cost and abundant energy is driving a revival of the U.S. manufacturing industry. Although the United States will have an enduring interest in stable global energy prices, it will no longer rely on direct and uncertain access to Middle Eastern oil, in sharp contrast to energy-starved countries in Asia.

In terms of hard power, the U.S. military is at the forefront of next-generation technologies, including unmanned systems, robotics and lasers. Even more superior than its hardware is its software: the command and control systems to conduct highly advanced joint operations and major wars.

The United States also remains the linchpin of the international community. Through hard-nosed diplomacy, economic pressure and the specter of military action, Washington has retained its ability to marshal effective multinational coalitions, bringing down Libya’s Moammar Gaddafi, getting weapons inspectors on the ground in Syria and embarking on serious negotiations to curb Iran’s nuclear weapons program. You can quibble with process and style, but it’s hard to argue that any of these would have happened without the United States.

More broadly, and most important, the United States is blessed with a superior combination of sound fundamentals in demography, geography, higher education and innovation. That ensures it has the people, ideas and security to thrive at home and on the world stage. There’s a reason elites around the world remain eager to send their fortunes, and often their families, to the United States.

Of course, the economic recovery is incomplete, and much remains to be done on the debt and growth, but as Australian Foreign Minister Bob Carr aptly noted in July 2012, “America is just one budget deal away from ending all talk of America being in decline.” Easier said than done, but still easier to address than the mammoth challenges facing the emerging powers.

As partisan as Washington is today, the United States has overcome episodes of far greater social discord and political turmoil. The recent souring of public opinion on the obstructionists in Congress is a healthy reminder of America’s propensity for political renewal.

In this dawning era of strategic advantage, the United States will confront foreign policy challenges largely associated with weakness and instability abroad. Washington will wrestle with the consequences of a fragile China and its implications for the economics and politics of East Asia. The Middle East will continue its painful and bloody revolution. And Europe appears increasingly unable to move beyond protracted stagnation, eroding its ability to play a constructive role in world affairs.

But being lonely at the top will also engender huge opportunities to build the kind of liberal order that the United States failed to consolidate in the 1990s. Rather than simply reengineering the existing system, this will require U.S. leadership to build international norms, rules and institutions from the ground up. Washington will have new leverage to renegotiate its relationships and engagements with the Middle East; the success of U.S. sanctions on Iran is only the first manifestation of America as an energy powerhouse.

The United States can also lead in knitting together historic trade pacts across the Pacific and Atlantic oceans, reenergizing a first-rate global trade agenda long sabotaged by protectionism and low standards. And Washington can use its newfound strength to exercise restraint and develop international rules around emerging security issues such as drone warfare and offensive cyber-capabilities. All of this will contribute to a more prosperous and secure United States.

The principal risk to these efforts is that Americans could choose to wall themselves off from the world after a difficult decade. According to a survey by the Chicago Council on Global Affairs, 38 percent of Americans want to stay out of world affairs, the highest share since 1947, and the figure rises to a majority among young Americans who came of age during the Iraq and Afghanistan wars.

But retrenchment would be a huge mistake. America’s domestic revival provides all the necessary tools to facilitate American leadership abroad. Being humble about the United States’ ability to shape foreign societies, particularly through military means, is no excuse for a lack of ambition to continue advancing U.S. interests and universal values overseas.

Rather than bracing for American decline, Washington should prepare to lead the world anew.

http://www.washingtonpost.com/opinions/americas-not-in-decline--its-on-the-rise/2013/10/18/4dde76be-35b1-11e3-80c6-7e6dd8d22d8f_print.html

Ee Hoe Hean Club SG

"Consequences of U.S. Decline"

by Immanuel Wallerstein

I have long argued that U.S. decline as a hegemonic power began circa 1970 and that a slow decline became a precipitate one during the presidency of George W. Bush. I first started writing about this in 1980 or so. At that time the reaction to this argument, from all political camps, was to reject it as absurd. In the 1990s, quite to the contrary, it was widely believed, again on all sides of the political spectrum, that the United States had reached the height of unipolar dominance.

However, after the burst bubble of 2008, opinion of politicians, pundits, and the general public began to change. Today, a large percentage of people (albeit not everyone) accepts the reality of at least some relative decline of U.S. power, prestige, and influence. In the United States this is accepted quite reluctantly. Politicians and pundits rival each other in recommending how this decline can still be reversed. I believe it is irreversible.

The real question is what the consequences of this decline are. The first is the manifest reduction of U.S. ability to control the world situation, and in particular the loss of trust by the erstwhile closest allies of the United States in its behavior. In the last month, because of the evidence released by Edward Snowden, it has become public knowledge that the U.S. National Security Agency (NSA) has been directly spying on the top political leadership of Germany, France, Mexico, and Brazil among others (as well, of course, on countless citizens of these countries).

I am sure the United States engaged in similar activities in 1950. But in 1950, none of these countries would have dared to make a public scandal of their anger, and demand that the United States stop doing this. If they do it today, it is because today the United States needs them more than they need the United States. These present leaders know that the United States has no choice but to promise, as President Obama just did, to cease these practices (even if the United States doesn't mean it). And the leaders of these four countries all know that their internal position will be strengthened, not weakened, by publically tweaking the nose of the United States.

Insofar as the media discuss U.S. decline, most attention is placed on China as a potential successor hegemon. This too misses the point. China is undoubtedly a country growing in geopolitical strength. But accession to the role of the hegemonic power is a long, arduous process. It would normally take at least another half-century for any country to reach the position where it could exercise hegemonic power. And this is a long time, during which much may happen.

Initially, there is no immediate successor to the role. Rather, what happens when the much lessened power of the erstwhile hegemonic power seems clear to other countries is that relative order in the world-system is replaced by a chaotic struggle among multiple poles of power, none of which can control the situation. The United States does remain a giant, but a giant with clay feet. It continues for the moment to have the strongest military force, but it finds itself unable to make much good use of it. The United States has tried to minimize its risks by concentrating on drone warfare. Former Secretary of Defense Robert Gates has just denounced this view as totally unrealistic militarily. He reminds us that one wins wars only by ground warfare, and the U.S. president is presently under enormous pressure by both politicians and popular sentiment not to use ground forces.

The problem for everyone in a situation of geopolitical chaos is the high level of anxiety it breeds and the opportunities it offers for destructive folly to prevail. The United States, for example, may no longer be able to win wars, but it can unleash enormous damage to itself and others by imprudent actions. Whatever the United States tries to do in the Middle East today, it loses. At present none of the strong actors in the Middle East (and I do mean none) take their cues from the United States any longer. This includes Egypt, Israel, Turkey, Syria, Saudi Arabia, Iraq, Iran, and Pakistan (not to mention Russia and China). The policy dilemmas this poses for the United States has been recorded in great detail in The New York Times. The conclusion of the internal debate in the Obama administration has been a super-ambiguous compromise, in which President Obama seems vacillating rather than forceful.

Finally, there are two real consequences of which we can be fairly sure in the decade to come. The first is the end of the U.S. dollar as the currency of last resort. When this happens, the United States will have lost a major protection for its national budget and for the cost of its economic operations. The second is the decline, probably a serious decline, in the relative standard of living of U.S. citizens and residents. The political consequences of this latter development are hard to predict in detail but will not be insubstantial.

http://www.binghamton.edu/fbc/commentaries/

Ee Hoe Hean Club SG

Book Review: 'The Myth of America's Decline,' by Josef Joffe

After the 1957 Sputnik launch, one Nobel Prize winner predicated that the Soviet Union's economy would overtake America's by 1984.

When will China's economy finally overtake America's? A recent report from the National Intelligence Council puts the date at 2030. The chief economist at Standard Chartered Bank says it will happen in 2020. And the Organization for Economic Cooperation and Development warns—or, perhaps, gloats—that the moment may come as soon as 2016, before President Obama leaves the White House.

Josef Joffe, editor and publisher of Germany's Die Zeit newspaper and a fellow at the Hoover Institution, takes a different view. As he convincingly lays out in "The Myth of America's Decline," China will never overtake the U.S. That's in part due to China's inherent weaknesses, but mostly it is because of America's enormous, if easily overlooked, strengths.

The author's case is bolstered by the long history of past false alarms. After the 1957 launch of Sputnik, Americans had a full-blown panic attack that they would be buried by the Soviet Union, as Nikita Khrushchev had famously promised. The U.S. was suffering a "crisis in education" along with a "missile gap." Paul Samuelson, the future economics Nobelist, predicted that the Soviet economy would overtake America's sometime around 1984. "Only self-delusion can keep us from admitting our decline to ourselves," a Harvard professor named Henry Kissinger mused in a 1961 book.

Similar warnings and premonitions of decline would sound with every passing decade, usually in tandem with the emergence of another contender to the American throne. In 1979, Ezra Vogel, also a Harvard professor, published "Japan as Number One." It helped inaugurate a decade of awe and hysteria about the country that—according to common belief—would own the 21st century.

As with the Russians of the 1950s and the Chinese today, the Japanese were credited with having harder-working students than ours, better bureaucrats, a more consensual style of politics, an economy geared toward manufacturing and savings rather than services and consumption, and a culture that put a premium on long-term social goals over instant personal gratification.

It also helped that the Japanese economy seemed to be tracing an unstoppable upward arc, with double-digit growth year after year. For declinists, Mr. Joffe observes, "percentages are destiny," and the percentages all seemed to be going Japan's way. Until they weren't. On Dec. 29, 1989, the Nikkei stock index hit an all-time high of 39000 and then crashed. Today the Nikkei hovers around the 14000 mark as the country stumbles through its third decade of stagnation.

Among the pleasures of Mr. Joffe's book is the sheer accumulation of silly comments by smart people about America's many impending dooms. (My favorite: "The Cold War is over; Japan has won," from the late Massachusetts Sen. Paul Tsongas in 1992.) Another pleasure is Mr. Joffe's explanation for why declinism seems to have such a grip on the American mind. " 'The sky is falling' should not be a very lucrative pitch," he writes. "But the message has worked wonders since time immemorial because doom, in biblical as well as political prophecy, always comes with a shiny flip side, which is redemption."

But the heart of the book lies in Mr. Joffe's vivisection of the China myth. Beijing boosters take a linear approach to China's growth, imagining that it will continue at current rates until the U.S. has been left bobbing in its wake. In reality, countries that start from a low base, as South Korea, Taiwan and Thailand did, often grow quickly at first but inevitably slow down as labor costs grow, corruption and rent-seeking spread, the population ages, political expectations rise, and the export-led growth model runs out of steam.

So it is with China today, except that Beijing has failed even notionally to abandon the commanding heights of the economy. A notable detail: "The total profits earned by China's top 500 private companies in 2009 were less than the total revenue of two state-controlled firms, China Mobile and Sinopec."

Meanwhile—and despite breathless reports to the contrary—Americans continue easily to outperform the Chinese on any metric of national power. Research and development? "The United States produces more science and engineering journal articles than Asia's top ten together, and three times more than China." Demography? By 2035, a larger percentage of Chinese than Americans will be over the age of 65. Education? Of the world's top 20 universities, 17 are in the U.S., according to the Shanghai Jiao Tong University rankings from 2012. None are in China. Military might? Even as the U.S. Navy shrinks, it fields 11 supercarriers against China's one not-so-super carrier.

And as for sheer economic size, the gap between the two countries will widen assuming growth in the U.S. of about 3%—the long-term historical rate—against 7.5% for China. Under President Obama the U.S. has been having trouble hitting 3%, but as Mr. Joffe notes, the U.S. enjoys "myriad sources of rejuvenation" (think of shale gas or iPads) whereas China is mainly counting on a shrinking pool of cheap labor.

All of this makes for a lively, convincing, salutary argument. It is, however, marred by the absence of any extended discussion of America's burgeoning debts or of the growth of entitlements that move us in the direction of European social democracy—where notions of decline are no fantasy. Nor is it helped by Mr. Joffe's cavalier (and factually dodgy) discussion of 1970s fears about Soviet military strength and U.S. economic weakness. We emerged from past ruts not because decline was impossible but because we elected wiser leaders and adopted better policies to reverse the trends. With luck we'll do it again, but there are no guarantees. America's decline will remain a myth only for as long as we see that it is so.

Mr. Stephens is the Journal's foreign-affairs columnist and deputy editorial page editor.

http://online.wsj.com/news/articles/SB10001424052702304073204579167540016173808