“Why ‘Made In China’ Is a Bigger Deal Than We Think”

By Stephen L. S. Smith

Walk through any department store, browse in house wares or children’s clothing or high-end electronics, and you won’t just see products. You’ll see “Made in China.” This is vivid evidence of China’s remarkable emergence since market-oriented reforms began in 1978. Hundreds of millions of Chinese have left poverty. In absolute size—that is, in the real value of goods and services produced—the Chinese economy is now nearly three-quarters the size of the U.S. economy. Within a decade, even if its growth slows, the combined effects of Chinese growth and U.S. dollar depreciation will likely make China the world’s largest economy.

I have observed China with affection my whole life, from growing up there as a child to my frequent recent professional visits as an economist. China will soon matter more than at any other time in my life, and more than at any time in world history. For more than a century no nation was larger than the United States. We’ve grown used to having enormous influence in global matters because of the size and prosperity of our economy. When thinking about global economic problems, we instinctively ask, “Can U.S. policy choices improve things?” We assume ours is the crux of the matter. No more.

Consider any global economic issue: Poverty in Africa? For decades, U.S. trade policy has attracted both criticism for agricultural subsidies which undercut poor farmers in West Africa, and praise for relatively low barriers to African exports. But looking ahead, China’s trade policies will likely be more important for Africa. Poverty-busting growth in labor-intensive agricultural and manufactured exports from Africa will hinge more on China’s willingness to trade than on U.S. trade policy.

Global warming? China is the world’s largest greenhouse gas emitter, increasing its lead rapidly. Expensive steps to cut U.S. carbon emissions won’t accomplish much unless China significantly cuts its emissions. Even if all other nations cap their emissions, China’s alone would dramatically boost the atmosphere’s carbon content. Like catching the golden snitch in quidditch, reducing Chinese emissions is not just part of the game, it is the game.

Corrupt exploitation of natural resources in poor countries? For years the West and the World Bank have struggled to regulate western multinationals' role in natural resource extraction. The huge, concentrated profits these firms make can be grabbed by strongmen and fuel authoritarian regimes. U.S. firms’ actions are circumscribed by laws like the Foreign Corrupt Practices Act and by World Bank-brokered agreements about how revenue gets paid to governments. Chinese investments in natural resource industries, pouring into Africa, are bound by none of that, and the Chinese government has few scruples about making commercial deals with corrupt governments.

Global stability? China could easily trigger a global crisis. Consider this recent description of the Chinese economy: “unstable, unbalanced, uncoordinated and unsustainable”—it’s the statement not of some unsympathetic critic of China’s progress, but of China’s own prime minister Wen Jiabao.

And China’s housing price bubble appears to be bursting. Property buyers are not indebted the way U.S. homeowners were, but its state-run banking system will have problems like ours when our housing bubble burst: bankruptcy and an expensive clean-up along with a recession. China’s ‘bigness’ helped the U.S. weather the financial crisis of 2008 and the subsequent recession. A crisis now in China would mean reduced sales and profits by U.S. firms, Chinese sales of U.S. Treasury bonds, and political turmoil as unemployment rises in a country with few social safety nets. None of this would be good for the U.S., or the rest of the world for that matter.

What links these issues is uncertainty about the core commitments and ideals of China’s government. Will China adopt political reform, becoming more democratically accountable at home? Will it partner with the U.S. in building strong and open multilateral institutions that address these global issues? If so, the U.S.-China relationship could evolve towards looking like the U.S.-Europe relationship: it would have competitive aspects but would be governed by shared interests and ideals.

China’s long history of cultural and economic accomplishments, a source of legitimate national pride, may help move the nation towards generous engagement with the rest of the world. But decades of Communist Party rule have scrubbed the country of religious values of all kinds, and denied citizens the free flow of information and the free play of civil society that are essential for democratic governance. The result is a moral vacuum.

Among the consequences I have witnessed is the white-hot emergence of a materialistic ethic, long a part of China’s traditional culture but now less constrained than ever. Chinese Christians, growing rapidly in number and in some positions of authority, may be able to help shape a more humane direction for the country.

The U.S. will have some influence. But ultimately China’s choices about reform and its role in the world will be very much “Made in China,” with momentous ramifications for us all.

Stephen L. S. Smith is professor of economics and business at Gordon College in Wenham, Massachusetts. He and his family live in Hamilton, Massachusetts.

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