Review: China Shakes the World

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China Shakes the World: A Titan’s Rise and Troubled Future-and the Challenge for America. James Kynge, Houghton Mifflin; 288 pages; $25.

James Kynge, veteran Financial Times correspondent in Beijing, has spent the last two decades watching China rejoin the world. And his new book China Shakes the World explains how 1.2 billion newly globalized persons, their government, problems and proficiencies, will effect everybody else.

1975 was the “nadir in well over a thousand years of economic history” for China. What the nation hadn’t missed by the imperial policy of isolation since the 1790s was destroyed by the wars and Cultural Revolution.

The break came in 1976. Mao died, and Deng Xiaoping, desperate for cash, chose to close his eyes to the little enterprises surreptitiously growing in the Pearl River Delta. Chinese entrepreneurs sniffed out their comparative advantages with a quickness: low-value manufacturing.

In thirty years, export-led growth has become an official mantra and China has moved up the value chain. Millions of middle-class Chinese drive the Chery, a US$3,600 domestic car. Factories export motorcycles to Vietnam at not more than the price of scrap steel.

China’s comparative advantage comes from hundreds of millions of poor laborers desperate to escape the “thousand-year tyranny” of the farm meeting factories exponentially more efficient than the spinning jenny mills that employed the British proletariat 200 years ago.

The result is huge output and rising expectations. To hold onto their own jobs, the politicos know they must fuel the cycle of growth, create more jobs, and meet expectations. Like an “elephant on a bicycle”, if China slows down, it will crash.

To keep the factories humming, the environment, piracy, and banking stay low on the totem pole. That Chery is actually a reverse-engineered Jetta, created by the German company’s Chinese joint venture partners. Chinese piracy regularly and immediately destroys R&D value. Rivers like the Huai, Yellow and Pearl, are simply dumps for toxic factories. Plumes of air pollution have already enveloped Hong Kong and regularly drift as far as Canada. Chinese banks give cheap loans to inefficient companies to create jobs .

The west complains about China’s illiberal economics. Meanwhile, Chinese schools teach about the unfair competition from gunboats on the Pearl and the Opium Wars. Will industrialized countries meet China’s challenge with creativity or clam up under tariffs, trade barriers, and ignorance like the emperors of long ago? Kynge suggests the former, starting with economic reform and a new focus on R&D. The west’s challenge is a search for a new comparative advantage.

Review by: BoI