Why China Isn't the Looming Economic Competitor We Think It Is
The following is an excerpt from the new book Unmade in China: The Hidden Truth About China's Economic Miracle by Jeremy Haft (Polity, 2015):
The proof of China’s might is in your waistband. And in the collar of your shirt; the chair you’re sitting on. The mug on your desk. The phone in your pocket. The toy your child is chewing on.
Just look around you. Everything seems to be “Made in China” these days. So it must be “the China Century.” And as China rises, America falls.
The logic goes something like this. It’s a global economy, a flat world. If China can make anything we can, only cheaper and at the click of a mouse, then we surely haven’t a prayer. We’re on a race with China to the bottom – in wages and, ultimately, quality of life.
The flat world is tilting east, and all our good jobs are flowing to China.
The pundits agree. Just look at today’s paper. There’s a story on the front page about surging Chinese imports, flooding our markets with cheap goods and killing US jobs.
Then there’s an op-ed on the back page. It says that China is already the world’s second-largest economy. And that major financial institutions like the International Monetary Fund predict China will overtake the United States economically in just a few short years.
Interestingly enough, before 2012, the typically pro-labor Democratic candidates were the China hardliners and the pro-trade Republicans the China softies. Now, talking tough on China was the bipartisan goose that laid the golden eggs. In both Democratic and Republican campaigns, the focus-group Svengalis told the messaging mavens to hit China early and often.
The polls show why. A recent Pew survey asked which is the world’s leading economic superpower – today, not at some point in the future. More Americans than not said China.
Think about that. More Americans today believe that China, not America, is the world’s leading economic superpower. You may be nodding your head in agreement.
So you probably won’t be surprised to learn that nearly 60 percent of British said China, too. And across 21 countries, the majority of respondents voted China over America as the world’s leading superpower.
No surprise, right? China’s might, and its dominance in the coming century, are just obvious. The ubiquitous labels on our products are proof enough of this irrefutable truth.
And if you square that truth with America’s jobless recovery, our cratered-out industries, shrinking middle class, crumbling infrastructure, paralyzed government, uncompetitive wages, and thicket of regulations, then the corollary to China’s rise is also an irrefutable truth. America is in decline.
But you don’t need a poll to tell you which way the wind is blowing.
To be sure, China’s rise is an emotional issue. Millions of Americans have lost jobs, homes, and pensions since the Great Recession of 2008. When the news media, politicians, and pundits almost universally blame China, it’s hard not to get angry.
But something deeper is at play here, too. There’s a thought-provoking psychological study that was conducted during the 2004 US presidential election between George W. Bush and John Kerry. Scientists wired electrodes to the skulls of Republicans and Democrats and showed them left-and right-leaning political statements, monitoring their brain functions. Each time a partisan statement was flashed on the screen, the areas of the subjects’ brains that lit up were not the centers of reason, as you’d expect. They were the emotional centers. Feelings, not logic, tend to drive our responses to political issues.
So it goes with China. One mention of “Made in China,” and the feelings just come spilling out. The problem with basing beliefs on feelings, of course, is that feelings are sometimes immune to facts. Just ask the Chinese. Remember that Pew poll? The one that asked which is the world’s leading superpower? The only country that overwhelmingly replied that China is not the world’s leading economic superpower today... was China. They said America.
Could the Chinese know something about their fabled rise that we don’t?
Yes. Because to stand on the ground in China and actually make things – make shirts and toys and apples and oil rigs– there is a reality that contradicts every widely held notion about China’s so-called rise. Seen from the inside looking out, China is not a manufacturing juggernaut at all. It’s a Lilliputian. China is not a lethal competitor. It’s an economic helpmeet. China is not a killer of American jobs. It’s a big job creator.
That’s right. China actually supports millions of jobs in the United States.
But in order to see this, you’ve got to do more than watch the news or visit a couple of factories or talk to some Chinese businesspeople. You must walk the line where raw materials are formed into products. You must see for yourself how these products are made, step by step, from inputs to outputs. And ideally, you must try to wring safe products out of this system.
What you’d see would surprise you. You’d discover that nearly everything we’re told about China’s rise is wrong; that, in fact, the very core of China’s supposed might – how China makes things – is riddled with risk.
China is deceptive that way. It looks like a manufacturing powerhouse until you draw back the curtain. Then, you see risk everywhere.
Consider the “Made in China” safety scandals. In the past few years, we’ve seen baby formula spiked with melamine, an industrial chemical that caused renal failure in over 300,000 Chinese infants and killed six. We’ve seen melamine- laced pet food, too, that killed hundreds and injured thou- sands of dogs and cats in the United States. We’ve seen bad batches of the blood thinner, heparin, administered in Amer- ican hospitals, killing 81 patients and sickening hundreds more. We’ve seen lead paint on Mattel toys. We’ve seen rotting Chinese drywall, installed in tens of thousands of US houses. We’ve seen exploding tires; faulty ignition switches; poison toothpaste and cough syrup; cracked welds on the San Francisco Bay Bridge; even “honey laundering,” in which more than one third of the honey that Americans consume is now deemed counterfeit – smuggled from China and laced with unsafe additives.
Whether it’s food, drugs, toys, tires, or bridges – pick any Chinese import – there have been big safety breaches. And this is not to mention the safety lapses in China – which are even more frequent, widespread, and deadly. Exploding watermelons, glow-in-the-dark pork, resold gutter oil, tainted seafood, scraps of animal skin in milk, arsenic in soy sauce, cadmium in rice, paraffin and ink in noodles, bleach in mushrooms, resin and starch to make fake eggs, poison gel caps and lethal antibiotics, collapsing roads and bridges.
There have been thousands of safety scandals in China just over the past few years. You can track them on a popular iPhone app called “The China Survival Guide” and on the website “Throw it out the window”. Most of the “Made in China” safety scandals go unnoticed in the United States. But when a story is newsworthy enough, our media tend to seek a villain – a nefarious criminal ring, a factory with lax quality control, a corrupt bureaucrat. When the Mattel lead paint story broke, for example, the media spotlight shone on the owner of the Chinese paint factory. With the poisoned baby formula, it was employees of the Chinese dairy firm, its middlemen, and suppliers that were the culprits. The underlying assumption in these news stories is that China’s frequent safety breaches are caused by a discrete set of bad actors.
The Chinese authorities agree. They repeatedly insist that each lapse in safety represents “one bad apple in the bunch,” and that “more than 99 percent of Chinese exports are safe.” So China’s crackdowns typically hinge on criminal prosecutions. When ten people died from poisoned antibiotics, China executed its chief food and drug regulator.
But these diagnoses miss the deeper problem. The sheer volume and variety of safety lapses, which number in the thousands and span every Chinese industry, indicate that something deeper is going on than mere one-offs. The “Made in China” safety scandals cannot be blamed on a group of wrongdoers. They are endemic. China’s entire system is to blame for these ongoing safety failures.
The risk that Chinese goods will be unsafe begins in the very ground, where crops are grown and livestock fed. Then it moves through China’s firms and farms to the long supply chains that link them up to the regulators that govern them. With each node of production, risk is baked into the system. Systemic risk in China has major implications for America.
It’s a major threat but also a major opportunity. The threat is easier to see than the opportunity. We hear about the threat often enough from many quarters. Chinese imports are unsafe. Despite a hundred years of evolving safety regulation in the United States after Upton Sinclair’s The Jungle exposed nauseatingly unsanitary conditions in slaughter-houses, the jungle is back! And it’s our biggest source for imported food, drugs, and consumer products. But, given the scope of systemic risk in China, how it permeates every level of manufacturing and agriculture, if anything, we’re still underestimating how dangerous Chinese imports are, and we need to do a much better job defending ourselves.
Yet systemic risk in China also presents a major opportunity. As China struggles to make safe goods reliably, it must import them. Imagine you’re a parent in China. You live in a brutally competitive, Darwinian economy with no social safety net to speak of. So if you’ve got some money in your pocket, you’re going to spend it on products that you think will be safe for your family. Increasingly, that means Chinese are buying American.
Though we rarely hear about it, China imports hundreds of billions of dollars’ worth of US manufactured goods, services, and agricultural products each year. In fact, China has shot up to become our third-largest export market behind Canada and Mexico.
And we’re not talking about a handful of multinational corporations selling China airplanes and semiconductors. In nearly every congressional district across America, exports to China have been skyrocketing for the last decade. Between 2003 and 2012, in 401 out of 435 congressional districts (that’s 92 percent), American exports to China doubled, often tripled, or, in some cases, grew tenfold and more.
So “Declining America” is selling products to “Rising China” hand over fist. With all that’s famously wrong about our economy, we’re still able to sell our wares to China from almost every congressional district. Exports support jobs. When China buys goods and services from US firms and farms, it employs Americans. But exports are only part of the jobs story. Chinese imports support American jobs, too. All those products need to be transported, warehoused, and retailed. And Chinese investments in American firms support jobs, as well.
But America is not alone. China also supports lots of jobs in Europe. The Chinese market is one of the fastest-growing export destinations for European goods and services. In fact, the EU is China’s number-one source of imports today, beating Taiwan, Japan − and America, which ranks as China’s fifth-largest source for imports. These exports to China support over three million European jobs.
Wait a sec. China, a job creator? Many of you are shaking your head: No. That just can’t be. Everything we see and hear about China tells us the opposite is true. But stay with me.
Forget the pundits and politicians. Exploring China’s secret supply chain is the only way to get a clear picture of China’s competitiveness. For when it comes to accurate eco- nomic data, China is a black box. Its official metrics are highly unreliable, partly because they’re politically moti- vated and partly because comprehensive research on any given topic in China is either rare or non-existent. So the aggregate data are untrustworthy, and the small case studies are misleading.
That’s why China’s own government officials disregard measurements of China’s economic size, trade volume, and exports as untrustworthy. Yet US academics, media, and politicians swallow these false numbers whole and regurgi- tate them as fact. A lack of good economic data has contrib- uted to our China myopia. China looms much larger in the world because we are looking at it through a false lens.
This cockeyed view of China’s economy causes many problems: bad governmental policies; squandered job oppor- tunities; ignored risks to our health and safety; and, above all, a false sense of self. We see a distorted image of America through the refracting lens of China. We seem puny. Uncom- petitive. On the decline. Yet to stand on the ground in China and see how things are actually made, you’d realize that the opposite is true. America is still vital. We’re still competitive. And China really needs what we make.