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GP22Sep04: China and the U.S.: Siamese Twins?

Too Soon to Tell.  When Chou En Lai, China’s greatest 20th-century leader, was asked what he thought of the French Revolution of 1789, he reputedly quipped, “I don’t know; it’s too soon to tell.”  (See www.nwc.navy.mil/chinesecs/players/communists/chouenlai.htm and  www.yellowbridge.com/humor/chinaamerica.html.)  

Very likely it’s also much too soon to tell how the marriage of convenience with China arranged by President Richard Nixon (and his henchman Kissinger) will work out.  Certainly it’s Nixon’s master achievement.  All this began in 1969 with the easing of trade restrictions with China.  Ambassadorial consultations followed and Kissinger made a secret trip to China in 1971.  Nixon visited Mao in 1972, and a new era had begun.  For sure, if we are not to enter a new Dark Age, this opening between East and West had best become an ever more blessed union, a merging good for a century or two. 

Ying and Yang Economies.  James Smith, an economist  at the University of North Carolina Business School, about whom we’ve written in Best of the Triangle, correctly explains that China (the grand producer) and the United States (voracious consumer) have become the twin engines of growth for the world economy.  Germany, Japan, and Europe as a whole have become sickly actors, very dependent on the China-U.S. duopoly for their health and welfare. 

Fortunately, he thinks both economies are in pretty good shape.  He just gave a talk entitled “The Whole World Needs China and the U.S.A. to Maintain Strong Economic Growth,” at the China Changsha Investment Banking Forum, August 25-26, 2004, which we have just put up on Two Rivers.  There he gives voice to his near-term optimism for both economies and argues that they’re about the only powerful tugboats around that can pull the global economy into clear waters.  (See Two Rivers.) 

Smith is a cheery fellow, and he always believes the U.S. economy is in pretty good shape and is on the verge of blowing our socks off.  Too many airlines, and other businesses, have been grounded for us to share his enthusiasm about the near-term prospects in the U.S.  He, and we, also would guess that China’s overheated economy will achieve a “soft” landing, since we think its over-achievers are capable of cooling off its economic dragon.  Our view, for now, flies in the face of the facts, with China’s “crucial inflation indicator” remaining at “5.3 percent in August,” despite a slew of government controls meant to tamp things down (New York Times, September 14, 2004, p.W1).  Interestingly, China and the U.S. are moving in lockstep, with Greenspan also trying to restrain inflation a bit with interest rate hikes. 

Nothing Like It in the World.  Stephen Ambrose’s fine book of this title, which is about the men who completed the U.S. transcontinental railroad from 1863-1869, reminds us that it takes a dense internal transportation network to complete a national economy and create enduring economic liftoff.  That’s about where the Chinese are now, as they weave together their internal market by building the logistics necessary to create national integration.  Up to now major economic development has hugged the coasts. 

Oddly enough this huge infrastructure effort suggests that these two nations, though at far different stages of development, are actually facing a common challenge.  The infrastructures of both nations are not suited to their fast changing, terribly dynamic marketplaces.  These are the world’s two great capitalist economies, and their backbones are not equal to the demands of their markets.  The Economist (see August 19, 2004) has just run persuasive articles about the terrible estate of healthcare and of the environment in the People’s Republic.  Energy shortages have slowed industry in several parts of the country.  The logistics and distribution structure, as mentioned, is a work in progress. 

Likewise, the infrastructure in the U.S. is plumb worn out and, importantly, it is not designed for the requirements of the service industries that are coming to dominate our economy.  (See “The Global Imperative,” Letters from the Global Province, October 2, 2000.)  The poor estate of public health has resulted in runaway health costs that have become the cancer of our economy, making us much less competitive globally.  Various parts of the country teeter on the edge of darkness (utility breakdown).  The more we spend on education the less we get for it.  We need a new, entirely different infrastructure for our globally wired service economy. 

China and America have more in common than their tightly linked economies.  They are plagued by moribund infrastructures. 

The New Geopolitics.  Europe, Russia, the African Continent, and the Middle East are not working.  The UN has yet to fulfill its promise.  In this vacuum, we would contend that only a strong China-U.S. alliance driven by a long range understanding of our mutual interests can drive stability across the world.  If this is true, James Smith has not gone far enough in his thinking.  The world needs China and the U.S. if it is to eat better.  But it also needs orchestration between them, such that they are welded at the hip, if we are to better confront the disarray unleashed by the end of the Cold War.  Only they together can deliver a peace dividend.  

As we have said in our forthcoming Annual Report on Annual Reports 2004, “The Uncertain Club vs. the Globe Trotters,” companies are best measured now by the degree to which they have globalized themselves in order to pounce on the opportunities a diverse world offers to them.  For China and the United States, the task is to accept their global role as stewards in a world of flux.

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