Page 16 - 2019 White Paper on the Business Environment in China
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9 White Paper on the Business Environment in China
subsidize production, accelerate industrialization, and be required to put Sino-American relations on an even
boost exports. In the process China earned the moniker keel. Improved access to the Chinese market would have
“the world’s factory.” The acceleration of Chinese export to be part of the solution. Likewise, a two-way street
growth also began shortly after the country’s entry into in acquisitions and investment, an end to hacking and
the World Trade Organization (WTO) in 2001 (Autor, theft of intellectual property and dumping by subsidized
et al). These factors meant a rising flow of Chinese state-owned enterprises. The larger geopolitical context,
electronics, apparel, and other goods into the US, which including the future of North Korea, Taiwan and the
helps to explain China’s contribution to the deficit as South China Sea, would also need to be addressed.
well as the deficit’s concentration in the manufacturing Even with the best will in the world, reaching such an
sector. US manufacturing employment dropped from accommodation may be a decade-long process (Tasker).
26 percent of the workforce in 1970 to 8.5 percent
in 2016, a fall that some believe was accelerated by China has closely studied Japan’s experience and is
Chinese competition. However, most economists likely to put up greater resistance to the concessions that
attribute the bulk of the reduction to automation, the US wants. But whether it gives in to Washington’s
productivity increases, and demand shifts from goods demands or resists and suffers more tariffs, the Chinese
to services (McBride, The US Trade). economy is in for a destabilizing jolt. Like Japan, China
may show vulnerabilities America didn’t expect and
The populist support of for trade restrictions is not isn’t prepared for. Washington learned that it had
new. Indeed, it was Democrat presidential candidate limited skill at micromanaging a distant economy to
Walter Mondale who said in 1984 that “We have to lift imports, but America’s power to innovate surpassed
stop following that white flag and start running up the anything the Japan doomsayers foresaw. By the turn of
American flag and turn and fight and make America the century, Japan had ceased to be a top trade issue.
number one again in international commerce so that As for China, currency manipulation was among the
American jobs are filled in this country.” The 1980s was biggest US complaints against Beijing until a few years
time of escalating trade hostility between the US and ago. The discussion has broadened into a critique of the
then rising Asian power Japan. Indeed, the current entire way China runs its economy under the present
stand-off between the US and China seems a model of US administration. Once-obscure bureaucratic plans in
decorum compared with the bitter rhetoric of that era. China are now at the center of global trade conflicts,
Just like today, there were concerns about industrial particularly “Made in China 2025,” a policy adopted
espionage. By the end of the decade Japan had replaced in 2015 calling on Chinese manufacturers to boost
the Soviet Union in public opinion as the number one domestic production of critical high-tech components.
threat to America. The US-Japan trade disputes were The parallels with Japan weaken when it comes to
handled by cool-headed professional negotiators over military tensions. Yet amid the talk of superpower
a dozen years to settle and had little discernible effect conflict, people may miss the risk of China going in
on global financial markets. The parallels between then the other direction. The Chinese financial system is the
and now are instructive, but so are the differences. biggest threat to global stability. China’s economy isn’t
Japan is highly reliant on America for its security. China, the same as Japan’s in the 1980s, but some structural
on the other hand, has shown the willingness and flaws are similar. Beijing’s regulators still have an
capability to challenge the American military presence inadequate grasp of risks in the financial system. China’s
in the region. As Tokyo-based Arcus Research analyst working-age population has begun shrinking because
Peter Tasker notes “Japan is a status quo power; China of a low birthrate. As the trade conflict with the US wears
is not. That fact is likely to have a significant effect on on, several economists say that Chinese leaders are
negotiating postures.” US-Japan trade frictions were already backing away from overhauls such as exposing
eventually defused by a combination of “voluntary” state-owned companies to more market competition.
export quotas, penalties under “Super 301” legislation And they may turn to short-term stimulus such as public
(a unilateral process for targeting nations supposedly works, the kind of move that Japan tried after the Plaza
guilty of unfair trade), a large-scale shift of Japanese auto Accord and later regretted (Landers).
manufacturing from Japan to the US and liberalization
of Japanese imports in previously protected areas.
Basically, Japan and the US became stakeholders in each
other’s economies. A somewhat different menu would
16
subsidize production, accelerate industrialization, and be required to put Sino-American relations on an even
boost exports. In the process China earned the moniker keel. Improved access to the Chinese market would have
“the world’s factory.” The acceleration of Chinese export to be part of the solution. Likewise, a two-way street
growth also began shortly after the country’s entry into in acquisitions and investment, an end to hacking and
the World Trade Organization (WTO) in 2001 (Autor, theft of intellectual property and dumping by subsidized
et al). These factors meant a rising flow of Chinese state-owned enterprises. The larger geopolitical context,
electronics, apparel, and other goods into the US, which including the future of North Korea, Taiwan and the
helps to explain China’s contribution to the deficit as South China Sea, would also need to be addressed.
well as the deficit’s concentration in the manufacturing Even with the best will in the world, reaching such an
sector. US manufacturing employment dropped from accommodation may be a decade-long process (Tasker).
26 percent of the workforce in 1970 to 8.5 percent
in 2016, a fall that some believe was accelerated by China has closely studied Japan’s experience and is
Chinese competition. However, most economists likely to put up greater resistance to the concessions that
attribute the bulk of the reduction to automation, the US wants. But whether it gives in to Washington’s
productivity increases, and demand shifts from goods demands or resists and suffers more tariffs, the Chinese
to services (McBride, The US Trade). economy is in for a destabilizing jolt. Like Japan, China
may show vulnerabilities America didn’t expect and
The populist support of for trade restrictions is not isn’t prepared for. Washington learned that it had
new. Indeed, it was Democrat presidential candidate limited skill at micromanaging a distant economy to
Walter Mondale who said in 1984 that “We have to lift imports, but America’s power to innovate surpassed
stop following that white flag and start running up the anything the Japan doomsayers foresaw. By the turn of
American flag and turn and fight and make America the century, Japan had ceased to be a top trade issue.
number one again in international commerce so that As for China, currency manipulation was among the
American jobs are filled in this country.” The 1980s was biggest US complaints against Beijing until a few years
time of escalating trade hostility between the US and ago. The discussion has broadened into a critique of the
then rising Asian power Japan. Indeed, the current entire way China runs its economy under the present
stand-off between the US and China seems a model of US administration. Once-obscure bureaucratic plans in
decorum compared with the bitter rhetoric of that era. China are now at the center of global trade conflicts,
Just like today, there were concerns about industrial particularly “Made in China 2025,” a policy adopted
espionage. By the end of the decade Japan had replaced in 2015 calling on Chinese manufacturers to boost
the Soviet Union in public opinion as the number one domestic production of critical high-tech components.
threat to America. The US-Japan trade disputes were The parallels with Japan weaken when it comes to
handled by cool-headed professional negotiators over military tensions. Yet amid the talk of superpower
a dozen years to settle and had little discernible effect conflict, people may miss the risk of China going in
on global financial markets. The parallels between then the other direction. The Chinese financial system is the
and now are instructive, but so are the differences. biggest threat to global stability. China’s economy isn’t
Japan is highly reliant on America for its security. China, the same as Japan’s in the 1980s, but some structural
on the other hand, has shown the willingness and flaws are similar. Beijing’s regulators still have an
capability to challenge the American military presence inadequate grasp of risks in the financial system. China’s
in the region. As Tokyo-based Arcus Research analyst working-age population has begun shrinking because
Peter Tasker notes “Japan is a status quo power; China of a low birthrate. As the trade conflict with the US wears
is not. That fact is likely to have a significant effect on on, several economists say that Chinese leaders are
negotiating postures.” US-Japan trade frictions were already backing away from overhauls such as exposing
eventually defused by a combination of “voluntary” state-owned companies to more market competition.
export quotas, penalties under “Super 301” legislation And they may turn to short-term stimulus such as public
(a unilateral process for targeting nations supposedly works, the kind of move that Japan tried after the Plaza
guilty of unfair trade), a large-scale shift of Japanese auto Accord and later regretted (Landers).
manufacturing from Japan to the US and liberalization
of Japanese imports in previously protected areas.
Basically, Japan and the US became stakeholders in each
other’s economies. A somewhat different menu would
16
