You’ve heard all the stats about China and this book has plenty of them. The first part of this book gives the reader some ideas about China and the trends occuring there. My take away from this portion of the book was that China faces some very challenging internal pressures. My original impression from going to China in 1999 was that government corruption was the largest single social problem the country faced but this book provides the evidence to challenge that presumption.
The single most startling story, although there are several, was the story of a poor woman whose income is based on sorting through garbage to discover items that can be resold. She has five daughters all of whom she found abandoned in the garbage. They were the babies that she found alive as she discovers countless dead female babies. The stats on the book tell volumes more about the first part of the book and I’ll go on.
The last half to one third of the book is devoted to showing the impact of China on the rest of the world. The last part provides an analysis of the balance of trade and fiscal strategies of the two countries, U.S.A. and China. If you are thinking that there are sign posts in the world today signalling a coming economic collapse larger than the 1929 Stockmarket crash, try this on for size.
Mr. Fishman outlines the role that China’s currency pegging against the US dollar plays in the dance between the two countries. He shows how the pegged currency aids in keeping prices of manufactured goods low, which in turn aids China by ensuring a large trade balance in their favour. Americans are buying Chinese manufactured goods and benefiting from a pegged Yuan which keeps the price of manufactured goods low. But it’s not only low consumer prices that China is impacting in the United States.
“The logic here is complex; because China buys so much on the U.S. bond market, China actually pushes up the price not only of U.S. currency, but also of American debt overall. And because any change in the yield on a debt instrument usually moves in the opposite direction of any change to its value, China’s heavy buying of U.S. Treasury bills and other forms of public and private debt serves to push down U.S. interest rates.”
“For example, China almost certainly has a large stake in the market for bonds issued by Fannie Mac and Freddie Mac, the companies that buy home mortgages from banks and thrift institutions and resell them as bundled securities. This means that billions of dollars’ worth of investments belonging to the Chinese are plowed, indirectly, into the American real estate market, and that an ever increasing share of Americans’ mortgage payments pour into the coffers of the government of China.”
“China keeps tight wraps on the value, composition, and trading of its portfolio, but Wall Street commonly assumes that the country also owns a large amount of high-grade U.S. corporate bonds, intertwining its national fortunes all the more with America’s blue chips – many of them the same corporations reaping fortunes in China itself. Thus does China indirectly profit from American corporations profiting in China.”
When NA newspapers carry this story, they talk about debt carried by Americans but they rarely mention who owns debt. This is partly because it isn’t always easy with corporate and governement debt to tell who exactly is holding the debt but someone always owns the debt. Mr. Fishman goes on to outline the scale of American debt.
“Foreigners now own 40 percent of all U.S. treasury securities, while total U.S. debt to foreigners tops $2.2 trillion. China’s share, however, is growing most impressively. In 2004, its $480 billion stake in the U.S. securities markets, a little less than a fourth of the total, was double what it had been only two years before.”
“These vast sums help to fill deep holes. The U.S. financial landscape is littered with record debts of all sorts, much of it financed by lending from China and Japan. America’s government debt grew by $1.7 billion a day in 2004, reaching $75 trillion. Moreover, in 2004, Americans collectivelyowed $9.5 trillion in mortgages, automobile loans, credit cards, and other peronsal debts, in fact, has never been higher. Instead of taking advantage of the lower interest rates to refinance and reduce their debt burdens, many Americans have regarded the cheap money as an opportunity to go out and spend more.That’s just the way exporters like it. The U.S. government has seen fit to do the same. Rather than use the period of low interest rates to pay off national debt and keep annual budgets in balance, as the Clinton administration did, the Bush administration set record budgets, slashed taxes, and ran up record budget deficits so big that paying off the national debt may never be possible. The people of China are financing that profligacy.”
The book is a great read in all areas. Fascinating stories about China abound and are copiously footnoted and documented but as big as this book is. I could have read more analysis than what was presented in the final pages. He gives short shrift to the role that the European economy plays in China’s future. This is perhaps telling as the book is aimed at Americans and they aren’t interested in reading about China and Europe but I am. He also has a very interesting section on the role of China, America and the knowledge economy. I can’t resist quoting from this section briefly.
“Another misunderstanding of the knowledge economy is that it applies mainly to high-tech industries and communications. Countries can only compete against China’s low wages and high skills if they have a population that is ready to make nearly any job a high-tech job. ‘There are no low-tech industries,’ says Deborah Wince-Smith, ‘only low-tech firms.’”
The knowledge section is a lead into the problems with the American education system. I found this to be one of the most startling sections and I suspect could be several books unto itself and there are probably already several published. The take away. The fuel that runs a knowledge economy is smart people. We can place a grade on that fuel using basic testing. The American economy is already trying to run on a low grade fuel especially when compared to China’s education system. You don’t have to be an expert to forecast that China’s economy is going to surpass U.S.A’s. What happen’s to American debt when that happens?
Jon Udell recently posted some thoughts about the nature of talent. “If you believe that talent is relatively abundant, as Doc and I do, then you imagine a very different future where technology favors use over control.”
The point being that in China, where Intellectual property controls are loose to non-existent, it favours an economy where talent is abundant. Don’t look for China to rush to control IP anytime soon.
China, Inc. : How the Rise of the Next Superpower Challenges America and the World By Ted Fishman
covers an interesting subject and the author has done a nice job telling the story. Quite highly recommended. The book has convinced me that it’s time to sign up for that Mandarin Beginners class.
