MysteriousFaith

When China’s Economic & Political Agendas Collide, Will You Be Ready?

Washington – Since China’s entry into the WTO, two questions have been present for those who follow the country’s compliance with its newly embraced standards of international accountability. First, and most broadly, how far will China actually take the necessary changes in how it governs and second, what is the US prepared to do if China’s compliance is deemed haphazard and inadequate? For several years, answers were believed to be less important than roughly gauging how China was responding to changes that ran deep within their culture and economy. 2007’s first meeting in February of the Congressional US-China Economic & Security Review Commission (USCC) and the February 2nd grievance filed by the US Trade Representative (USTR) suggest that, among other things, in 2007 US policy towards China will be forcefully emphasizing compliance with existing WTO expectations. For US businessmen who have had the luxury of overlooking US and China’s political orientation towards one another, 2007 may be a year of unpleasant surprises with confrontation and non-compliance the order of the day.

Forcing broader WTO compliance on China is a complicated proposition in large part because the US’ own motives relative to China are mixed. The US government is attempting to balance the interests of two American business communities who have disparate agendas. On one hand are the well connected multi-national companies who call the US home and who rely on the low price of Chinese imports to sustain their growth and profitability. These organizations are leery of the US government being too heavy-handed in an effort to enforce WTO compliance for fear China may resist and engage in their own form of protectionism which would subsequently damage the US companies’ ability to access China as a source for short-term cost savings and longer-term revenue growth.

On the other hand are the interests of small and mid-sized enterprises (SME) who do not have capital either to relocate manufacturing overseas or to fundamentally reinvent themselves through intensive product development. In a rare alignment of hoped-for outcomes, SMEs – who are usually somewhat hostile to organized labor – share a desire with unions to see the government intervene in what both parties believe are unfair trade practices by the Chinese. SMEs and labor unions want what amounts to a harsher stand on the China question: they would willingly force WTO compliance because they believe doing so will readjust global prices in their favor and draw out mercantilist policies which are believed to be at the base of Chinese economic development.

Economic incentives are not the only motivation for a change in posture towards China. Washington is beginning to question the commonly accepted wisdom that economic liberalization within China will necessarily lead to political freedom for the Chinese. In the past, when political pressure mounted for Washington to take harsher stands, an unspoken fear that taking too strong a position would hurt US businesses and have a deleterious impact on China’s very infantile democratization resulted in caution and quiet. These concerns have thus far prevented US policy makers from taking stronger positions. Recently, China has done itself no favors by conducting the much talked-of anti-satellite (ASAT) test which suggests to some that China should not be considered a “responsible stakeholder” in matters of global concern.

Most people assume that, were the US to pressure China on these matters, it would have to positively respond to the changes the US desires; however, China’s history suggests that this may not be a wise assumption. As Jonathan Spence eloquently captured in his book To Change China: Western Advisers in China, China’s history shows that it has no qualms about dispensing with external influence once the country’s leadership believes it has learned what it can from outsiders. Globalization may have changed many things, but it is unlikely the world will ever be as flat as we would hope, and our respective histories are never be as far away from influencing our behavior as we would like to think.

History frowns on those who make broad assumptions about the inevitability of global inner-connectivity, economic growth and peace. Few look forward and realize what are today calm waters might actually hide deeper currents of discontent and incompatibility. While it would be foolish to assume that US-China relations are destined for inevitable conflict, it is equally foolhardy to overlook the possibility that China’s engagement with global systems of accountability may go through periods where the country’s leadership dances with its own form of protectionism. After all, while China’s success is almost wholly export-based, the sheer size of its domestic market and the potential power of its national savings being mobilized in the form of encouraged consumption (a policy Americans are well acquainted with, albeit now through accessing debt and not savings) combine to give China a unique ability to attempt and stand on its own if it believes foreign influence is pushing it too far too fast.

Consequently, American businesses reliant on the “China Price” may want to seriously investigate how their business would survive a frost in the relationship between the two countries. Among the questions this begs is whether US business has over-invested or over-emphasized the role China should be playing in their strategy. More importantly, wrestling with this question will draw out broader strategic issues which go to the heart of the business itself. For many companies, accessing China’s labor inputs has extended the life cycle of products which, absent a lower price or aesthetic redesign, would have fully matured. Has innovation been mistaken for what really amounts to a series of incremental product-line extensions? If not for the “China Price”, would these product line extensions have made little or no sense and been replaced by real research and product development? Was getting the lowest price through aggressive sourcing pursued because it was convenient in China, or because it would have been much harder to create new consumer demand? Many will argue that they attempted to do both, but the experience of the American consumer at retail is largely that of product and price parity, suggesting the latter strategy has been largely overlooked.

China as the world’s factory is an inevitable developmental stage, something every modernizing country must evolve through in order to prosper and pull itself out of an agrarian economy. Consequently, the role US companies have played in utilizing China’s low price labor made sense for both parties; however, as China continues to grow, its needs will change, and these needs may not be what external organizations like the WTO believe are most important. As much as we might like to put our heads down and pretend China’s history is just that and no more, we may be entering a period of time where their economic and political agendas collide. The question is, will your business be ready if this happens?

previous post: March 2007 USCC Meeting
next post: Andrew Sullivan & Sam Harris Conclude

• Posted in China, Politics
• no comments
• Trackback
• April 5, 2007

• Bookmark on del.icio.us
• Bookmark on Digg

Leave a Reply

Name (required)

Mail (will not be published) (required)

Website