The End of Cheap China: Economic and Cultural Trends That Will Disrupt the World (17 page)

As China’s might grows, nations around the world are going to have to decide how close to China they will get. Italy is a perfect example: It wants Chinese help, yet at the same is afraid that Chinese companies will take market share away from its biggest and most traditional industries.

One of the few things that can halt China’s continuing explosive growth is the depletion of natural resources, which would cause steady, long-term inflation. For example, food prices soared throughout 2011, with year-over-year pork prices rising 50 percent, apples 30 percent, and yogurt 25 percent.

To try to keep a lid on raw-material inflation, China has adopted a forward-looking mind-set to build relationships with any country that will do business with it, regardless of ideology or human-rights issues. This has included working closely with countries like Sudan (both the southern and northern parts) and Iran, whose governments many Americans view as unsavory at best, and outright sponsors of terror at worst.

Many Western critics cite these ties as evidence of China’s support of terrorism and genocidal regimes, which increases mistrust in Chinese leadership and its intentions. Western nations also fear these investments because they force the balance of international power away from America and disrupt the status quo. By investing abroad, and helping countries hit hard by the financial crisis by buying more of their bonds or products, China has won their support and gains more concessions in world affairs—but at the same time, this increases other countries’ suspicion.

PAKISTAN

I met Tushna and Kaevan, a brother and sister from Karachi, Pakistan, in 2011. Kaevan had a bushy, jet-black mustache and short hair, and wore a brown shirt when we met over breakfast; his sister wore a light-red shirt.

As with many Pakistanis I have interviewed in the last decade, during which the United States used military bases in Pakistan to invade Afghanistan after September 11, there was frustration and sometimes anger in their voices about America’s involvement in their country. They feel America has been arrogant and hypocritical in how it has dealt with Pakistan, and they are bitter about the Pakistani lives that have been lost.

Tushna put her cup of coffee on the table and said, angrily, “The Americans come and drop a bomb and kill civilians and act as if they are just casualties of war. Then when someone kills one of their soldiers, they act high and mighty as if it is morally wrong to kill.” She continued, showing her annoyance: “When American leaders travel the city they shut entire roads for a day at a time, inconveniencing everyone. How can we live when we cannot go anywhere? How are they helping us?”

Tushna and Kaevan’s anger was palpable. I was a little worried they would start yelling at me, as a group of Pakistanis once did in 2010, at a conference in Vietnam where I was a speaker, when they found out I am American. I decided to change the subject to China.

Immediately, a smile emerged from under Kaevan’s mustache, and his whole body seemed to relax. “China has been an all-weather friend to us,” he said. “Whether to help with security issues with India or problems with the United States, China has been there to support us rather than order us around.” He rattled off the key areas of support China had provided to Pakistan since 1950, when Pakistan became one of the first nations to recognize China over Taiwan: key military aid, cooperation on building Pakistan’s civilian nuclear power initiatives, and economic assistance.

Kaevan’s sister agreed. “All levels of Pakistani society right now like China. They are bringing money without American arrogance. They don’t tell us what to do as if we are children and don’t know any better.”

Many countries that have political systems other than American-style democracy, such as Pakistan, are naturally gravitating towards China, not only because of money but because they see China as being more hands-off about their internal affairs. For many Westerners, China’s deals with regimes that are opposed to or ambivalent about American power gives them the impression that China lacks morality.

One of the issues China will have to deal with internally in the coming years is how to balance its need for natural resources and its newly found prominent position in world affairs. It is demanding more power in international organizations like the International Monetary Fund and the World Bank, where Chinese economists Zhu Min and Justin Lin have taken senior positions. Yet if it does this, it will also have to adhere to demands from the rest of the world for it to take a greater moral stand against injustice.

The crux of the issues surrounding China on an international scale is that the world does not fully comprehend how to deal with a rising China. In many ways, the financial crisis has put China in a position of power so quickly that other nations do not quite know how to handle this new situation. China also likes to hide its true power and intentions in order to gain more power, because other countries won’t know exactly what they are dealing with. As a result, they often overestimate China’s military capabilities.

One retired senior politician from America told me, “If China is increasing its trade volumes around the world, shouldn’t it be securing its own shipping lanes?” He was irritated because he felt China was freeloading on the U.S. Navy’s protection of maritime trade routes, but was taking an increasingly muscular stand in the South China Sea, causing anger in Vietnam and the Philippines.

AMERICA

On a trip to the United States in early 2011 to give a speech at the Wharton School of Business, I took my three-year-old son, Tom, to New York to see Times Square. I had heard about a major advertising campaign the Chinese government had launched on electronic billboards there to improve its image with the millions of tourists who pass through each year. The campaign was a major initiative the government had launched to combat increasing anti-China rhetoric in America, and the rising uneasiness that was accompanying China’s emergence in places like Canada and Australia.

My son wouldn’t stop jumping up and down until we tracked down the billboard. I had been telling him, during the incredibly slow Amtrak ride from Boston, about how cool the campaign would be. He was bubbling as if we were about to visit Disney World.

As soon as we arrived, we saw the famous Naked Cowboy playing his guitar on our right, but looking around we couldn’t find the ad anywhere. I asked police officers if they knew where the China ads were. All shrugged their shoulders and said they didn’t know.

After about an hour of walking around, eventually carrying Tom on my shoulders when he got tired, I finally found China’s attempt at soft power. It was underwhelming to say the least.

The screen showing the commercial was tucked away on a poorly visible section of the square. Even worse, it was filled with shots of Chinese scientists, businessmen, athletes, and movie stars. With the exception of Yao Ming, there was nobody that anyone in Times Square that day would have recognized. I barely recognized most of them myself, and none really represented what China is to me. I stopped a woman walking by, whom I recognized as a mainlander, to ask if she knew the people in the ad. She said she recognized only a few.

The campaign was an utter failure. It failed to establish a connection with the American public and tourists from around the world, because it didn’t understand at the most basic level who in China is known or unknown in America, or how views of China are shaped. The producers simply had not analyzed their target audience and therefore used the wrong images. Implicit in the attempt itself was at least an acknowledgment that China needs to show a better face to the world, but it also proved that it doesn’t know how to do so yet.

If China is going to address the negative feelings bubbling up toward it throughout the world, it will need to do a better job than this, I thought. Most soft power needs to come from Chinese society itself, not necessarily through government-sponsored initiatives that are out of touch with everyday people in other nations.

It is the year 2030 in Beijing. A sinister-looking Chinese professor is teaching a class about the rise and fall of global powers in a dark lecture hall lined with Mao posters. The professor attributes America’s downfall for his students, who are furiously taking notes, to overspending, tax hikes, and big government. He sneeringly lectures that China owned America’s debt and concludes, “Now they work for us.” The students cackle in response.

This was a TV ad titled “Chinese Professor,” commissioned by Citizens Against Government Waste in the run-up to the 2010 U.S. midterm elections. It made headlines in America by evoking the fear of a world overrun with Chinese. During the 2010 campaign, at least 29 candidates from both parties tapped into American fears of China in an attempt to scare people into voting for them. Nevada Senator Harry Reid’s campaign aired an ad accusing opponent Sharron Angle of being “a foreign worker’s best friend” for supporting tax breaks to encourage outsourcing to China and India. An ad commissioned by Ohio Congressman Zack Space featured a sarcastic voice thanking Republican opponent Bob Gibbs for supporting free-trade policies that sent Ohioans’ jobs to China. American anti-China ads are only growing more sensational and direct; a 2011 ad paid for by former Nevada Republican Party chair Mark Amodei featured images of Chinese soldiers marching on the Capitol Building in Washington, DC.

Sadly, the anti-China rhetoric in U.S. political advertisements reflects the larger pattern of anti-Chinese headlines in the media. As mentioned, Paul Krugman has increased the bad feelings toward the Chinese government by arguing that it is directly stealing American jobs by keeping its currency artificially low. President Obama has accused China of not “playing by the rules.”

Meanwhile, fears are rising in London about wireless hubs built by Chinese telecom maker Huawei. Many Londoners believe these systems allow the Chinese government to spy on them. Even the Committee of Foreign Investment in the United States advised Huawei to divest its acquisition of American server company 3Leaf Systems due to national security concerns. This recommendation came after Huawei had already paid $2 million for the intellectual property.

China has become an easy scapegoat as the United States suffers through a jobless economic recovery as well as attempts to cut spending and adjust the debt ceiling. It is far easier to blame China than to take responsibility for profligate spending by everyday Americans, poor oversight by regulators, irresponsible risk-taking by Wall Street financial institutions, and a bickering political class.

Every generation of Americans seems have its favorite bogeyman. In 1960s, it was Vietnam and the scourge of the godless Communist. In the mid-to-late 1980s, as relations with the Soviet Union warmed, Japan became the threat, especially after it bought iconic American landmarks like Rockefeller Center and Pebble Beach. Movies like the 1993 Sean Connery/Wesley Snipes thriller
Rising Sun
, based on the Michael Crichton novel, stoked U.S. fears of an America, Inc. already having been taken over by inscrutable Japanese.

Since then, with Japan’s economy stagnant for two decades and China overtaking it as the world’s second-largest economy, China has now replaced Japan as the threat. Many people like to draw parallels between Japan in the 1980s and China today, but these simple parallels ignore a few clear and important differences. In fact, Americans should be far more welcoming of Chinese investment.

Japanese companies believed in the superiority of their management system. Made confident by books such as Ezra Vogel’s
Japan as Number One: Lessons for America
, Japanese executive teams felt they had developed new a new management technique that ought to replace the outdated American model. They thought their low executive salaries and family-like corporate atmospheres emphasized the company over the individual and bred more loyal and driven employees. American businessmen began reading works like
A Book of Five Rings
by Miyamoto Musashi and Chet Flippo’s
New York Magazine
article “Samurai Businessman.”

Japanese companies were ruthless with the foreign companies they bought out. They quickly replaced senior management teams and instituted glass ceilings for top positions. Even today, few Japanese companies in the United States have non-Japanese senior executives. Often the
gaijin
they do have are mere tokens, who do not have much power internally.

Soon after the explosion of the dot-com bubble, Ron, a 48-year-old Harvard Business School graduate who worked for a big Japanese bank in New York, told me, “The worst thing a high-achieving American can do is work at a Japanese firm. They put glass ceilings everywhere and you get treated like you’re inferior. Once the economy gets better, I’m out of here.”

Contrast this with Chinese companies. In interviews my firm conducted with senior executives of Chinese firms, they buy foreign companies for their brand equity, technology know-how, and, most important, their modern management systems. I don’t think I have ever heard a Chinese businessman say he thought Chinese management systems were superior to American ones. One of the main goals of Chinese firms is to buy Western companies to learn from them.

When Chinese firms complete acquisitions, not only are most foreign management structures left untouched, but their best practices are often exported to China. China is constantly seeking to improve existing operations in the home market. Take, for instance, when Chinese computer maker Lenovo acquired IBM’s ThinkPad laptop line. There were few layoffs, and Lenovo actually poached senior executives from Dell to run their operations. They did not install senior Chinese officials until the business lost market share in the domestic Chinese market and the founder of Lenovo took back the helm, much as Michael Dell did when Dell’s business faced headwinds.

In other words, America should welcome investment from Chinese companies instead of fearing it. China is not looking to steal U.S. white-collar jobs and create a realm with limited opportunities for Americans. New economic connections between America and China can also hedge against security risks in the future. After World War II, America was able to rebuild its relations with Germany and Japan by integrating their economies with its own. This strategy worked well in the past and has the potential to work again in the present.