China added another chapter to its growth story in Q1 2011. GDP, reported Friday, surged 9.7% in the quarter. China’s growth has clearly been impressive—over the past two decades, their economy has not only achieved fast growth, but has been remarkably resilient to recession.
Bully for them—growth is good. Yet, it’s not uncommon to read in media apprehension (or jealousy maybe) about China’s growth—typically based on the idea China’s growth creates myriad woes for America. But China’s growth needn’t come at the expense of America’s. Rather, China (like all Emerging Markets) presents an opportunity for US businesses, and its growth buoys ours.
The fears of China detracting from US growth likely rest on assumptions the world’s economy is a fixed pie. But it isn’t; it’s a growing pie. So while other countries may be growing—some, like China, growing fast—the US has simultaneously expanded on an absolute level. Additionally, while some opine China is “stealing” US manufacturing jobs, data say otherwise. Manufacturing jobs, by their nature, go away as we get more technologically advanced and more productive. This is overall good, not bad. And the US isn’t the only one losing manufacturing jobs to increasing productivity. Since the mid-1990s (early in China’s ongoing rise), China has lost approximately 16 million manufacturing jobs. And though manufacturing jobs are decreasing, manufacturing output (from China, America, and the world) keeps increasing. (Interesting side note: Though Chinese manufacturing is rising fast, the US still manufactures much more.)
Still others see China’s ownership of US debt as evident of our economic “weakness” relative to them—thinking the US is in a subservient position as a result. While it’s true China owns a relatively significant amount of our debt (about 8%),what’s the fear? Debt doesn’t give the owner a vote—on the contrary: It subjects the owner to the policy decisions of the borrower. And if China sells bonds they own, the US isn’t required to suddenly repay the note on the spot. Rather, the contract shifts to whoever buys from China. The US government carries on paying the same interest and eventually repays the note to whoever holds it—zero sum from the US’ perspective. And considering the size of their ownership, a mass Chinese sale of US debt is highly improbable—if they tried, it could easily depress the value of debt they still own, shooting themselves squarely in the foot.
Some on both sides might not like to admit it, but the economic relationship between the US and China is symbiotic—not host and parasite. Sure, Chinese exports add a great deal of value to their economy and many come to the US. But that means China has a vested interest in our economic growth. If we don’t grow, they likely lose potential business. Trade always has at least two sides—and one side simply enriching itself at the others’ expense wouldn’t be very viable long term. In fact, one of the reasons China owns so much of our debt is they’re investing the proceeds of trade back into the US! China’s rapidly growing economy, expanding wealth, and infrastructure investment also present US companies with a significant market for their goods and expertise—a fact that’s fully global (just ask Australian miners how they feel about China’s economy). China’s fast growth has brought with it a fast-growing middle class—customers who helped create their Q1 trade deficit by buying foreign-made goods. And US companies have more than a foothold there. In fact, many automakers seemingly have found success marketing “imported from Detroit” cars in Beijing.
Many China fears seem to go hand in hand with increasing globalization—similar to 30 years ago, when fears of Japanese domination of the US through trade and acquisition of real estate were rampant. Folks, the world is not likely to get less globalized any time soon. Now, if the means to greater globalization was a long-term decline in the absolute amount of US production, that would be bad. But the long-term trend isn’t American decline, and it isn’t likely going forward. More likely is a continuation of recent trends: Historically backwater economies embrace reform leading to quick growth. Right now, that’s China, whose rapid expansion follows Mao Zedong’s collectivist economic hari kari (like the Great Leap Forward that was neither great, nor a leap, nor forward). But consider what’s behind their rise: Reforms begun under Deng Xiaoping involved importing capitalism bit by bit. And they have a long way to go: While China’s GDP might be second globally, it’s GDP per capita is 126th.*China’s rapid growth may have reduced our share of global GDP relatively, but it’s a far bigger globe economically because of it. Accordingly, Americans and capitalists everywhere should look to China not with fear, but with an eye toward the economic opportunity it presents.
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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.