Features > October 24, 2005
See No Evil (cont’d)
To be sure, the growth in China’s domestic economy offers plenty of opportunities for U.S. companies. For years, spending on China’s infrastructure has been rising, and now consumer spending is exploding. An estimated 350 million Chinese—more than the population of the entire United States—spend $10 per month on cell phone services alone. For an American company, success in China, even with products that are made in China, can be the difference between survival and failure. Witness, for instance, the great boost that ailing General Motors has had in China, where its cars are top-sellers.
On the other hand, Chinese copycats—stealing everything from movies and software to plans for machinery and chip-making equipment—take unfair advantage of the relative openness of American companies. The Chinese are also frantically trying to nurture home-grown businesses that can compete with the best from America. At the same time, the Chinese government has held down the value of its own currency, making it cheaper for American companies to invest in China—and cheaper for American consumers to buy imported Chinese goods. While recently the country slightly raised the value of its currency (and may do so again periodically), most observers think that China’s currency will remain artificially low, or “cheap” in economic terms, for many years to come.
Because of the complex economic dance between China and the United States, the combination of fear and collaboration is a toxic brew for even well-intentioned Americans doing business in the country. As the New York Times editorial page opined recently, “Because China is too lucrative a market to resist, American and European businessmen have ended up endorsing the party line through their silence—or worse. They are not molding China; China is molding them.” In short, “constructive engagement” with China is a myth.
Some senior American executives of leading multinational corporations privately fret that their Chinese experiment will end badly, and not the least because they recognize that their investments in China have helped prop up an authoritarian regime that may be incubating social revolution or worse. Underneath the seemingly stable surface, dissent and unrest in China is rising. Even statistics from the government’s own police force show a troubling trend: The number of mass protests reached 74,000 last year, compared to 10,000 in 1994.
With hundreds of unreported protests now taking place in China each week, far-sighted American executives are beginning to ponder what will happen to their investments if China implodes. One chief executive of a Fortune 500 company told me after I returned from China that he has a wait-and-see attitude, but feels increasingly doubtful that constructive engagement with China will bear fruit.
“We’re capitalists and supposed to be running a business for a profit,” he says. “So you don’t want to leave a big market. On the other hand, China has serious political problems and the Chinese people lack basic freedoms. I’m not in China to solve the political problems, but if they aren’t solved, foreign companies are either going to get kicked out of China, ultimately, or leave.”
So, how should Americans respond to this situation?
First, Americans ought to squarely face their striking cycle of dependency with China, its government and economy. The U.S. government’s huge deficits are partly financed by the Chinese government, which, through state-owned banks, buys U.S. Treasury bills with profits generated from exporting goods to the American market and the savings of ordinary Chinese citizens. The Chinese don’t need to invest all or even a large part of their savings in their own country because American banks and corporations (as well as European and Japanese businesses) are willing to finance a great deal of the capital needed for the expansion of China’s economy. Foreign investors do this because they believe that investment opportunities in both public infrastructure and private enterprise are better in China than in their own countries, and besides, European and North American investors are awash in cash anyway. The Chinese government makes investing in China even more attractive to foreigners by holding down the value of its currency, the yuan.
Ultimately, however, the Chinese end up holding a huge amount of U.S. dollars, leaving them vulnerable to sharing the pain of any American economic setbacks, such as steeper declines in the value of the dollar. Moveover, because America is the largest, most lucrative market for Chinese-made goods, China’s business and economic elite are trapped in a dilemma of their own making: Americans are now hooked on cheap Chinese goods, while the Chinese are hooked on selling to Americans. Raising prices could enrich Chinese producers, but also cause a collapse in demand for their products.
This interdependency between the U.S. and Chinese economies means that American business executives, government policymakers and perhaps even ordinary citizens have more leverage with the government of China than they realize. Consider this crucial question: Who can more easily afford a rupture? The Americans, with their vastly diversified economy, or the Chinese, whose economic empire is essentially built on satisfying one single, bargain-hungry customer—America?
I don’t know the answer to that question, but let me suggest that, for Americans at least, the price of having principles may be to test China’s resolve more often and more pointedly. I am reminded of this possibility when I turned up at a Web café on one of the last days of my recent visit. It was 8:30 and the café was just opening. I’d been there three mornings running and a woman had helped me navigate the Chinese keyboard and screen prompts so I could reach an English interface. This morning the routine was different. There was a black vinyl binder at the front counter in front of her. Inside was a sheet for foreign nationals who wanted to use the Web. Before I could log in, I had to write my name and my passport number and state the purpose of my visit.
I complained to the woman about the sign-up sheet—she showed me to a PC anyway. Before I sat down, a man appeared and he said that unless I signed the book, I couldn’t use the Web café.
I told him I refused to sign. He waved his hand angrily at me, showing me the door. “American go home,” he told me.
And that’s what I did.
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