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As China Surges, It Also Proves A Buttress to American Strength
Beijing Feeds a Giant Appetite In U.S. for Low-Cost Goods And Borrowed Capital
By ANDREW HIGGINS
Staff Reporter of THE WALL STREET
JOURNAL
DONGGUAN, China -- Frank Lin joined fellow Chinese furniture makers at a
hotel here last summer to discuss some alarming news from America: U.S.
furniture companies were asking Washington to investigate "illegal" Chinese
trade practices and restrict Chinese sales to the U.S. Among the
petitioners was one of Mr. Lin's longtime customers, Virginia-based onMouseOver="window.status=(' Quotes & Research for HOFT');return true"
onMouseOut="window.status=('');return true">Hooker Furniture Corp.
![[power and peril bug]](https://online.wsj.com/public/resources/images/NewPaxAm_Bug201302004045153.gif)
Mr. Lin's dismay turned to confusion days later when he received an
e-mail from Hooker's chief executive. Hooker looked forward to an "exciting
future" doing business with China, said the message, and wanted to
"continue the extraordinary growth we have had in the last few years with
Asian imports."
Indeed, thanks largely to the imports, Hooker has boomed. It closed a
factory in North Carolina last summer but has boosted profits and dazzled
investors with a stock that more than quadrupled in two years.
"I just don't understand what they are doing. It makes no sense," Mr.
Lin said after receiving the e-mail in August. On his desk lay designs sent
from America. Lining the wall, newly crafted chairs stood ready for
inspection by U.S. buyers. "If they don't import, they die. They need us.
So why do they want to hurt us?" Mr. Lin wondered.
His bewilderment flows from a much bigger tension besetting U.S.
economic relations with China -- and the economic forces that underpin
America's global hegemony. China's rise both supports the American
superpower and embodies some of its self-generated vulnerabilities.
![[Frank Lin]](https://online.wsj.com/public/resources/images/Lin_Frank-GD85101292004214714.gif)
Burgeoning business ties with China have become treacherous terrain.
Anxious to calm workers' worries about jobs, and fearful of appearing
unpatriotic, even some U.S. companies that rely on China are joining
industry coalitions clamoring to curb the "China threat."
But there's another side to China's dynamism. China is slotting itself
into the global economic order that America dominates and largely created.
As a critical link in this capitalist chain, nominally communist China
helps enrich companies such as Hooker. At the same time, it supports a
central feature of America's superpower status: its gargantuan appetite for
foreign goods and capital.
Though America is sometimes loosely called an empire, it defies the
imperial economic script described by Lenin (who called imperialism "the
highest form of capitalism"). The U.S. doesn't seek vassal states as
outlets for surplus capital. In an anomaly for such a powerful nation,
America sucks in money from abroad. With its large national debt and trade
deficits, the U.S. binds not by lending but by borrowing and by
importing.
Its status as a "hyper-debtor" makes this "hyper-power" oddly reliant on
weaker partners, says Niall Ferguson, a professor at New York University
and scholar of imperial history. "If you are dependent on the willingness
of others to hold your assets, there is a limit to how unilaterally you can
act."
For all their nation's power, many Americans feel an economic
insecurity, for which China is a lightning rod. Its blitzkrieg thrust into
U.S. markets over the past decade, many worry, reveals a soft economic core
under the tough carapace of America's military might. From bed frames to
circuit-boards, the industrial bedrock of American power is crumbling, say
some politicians and pundits. At stake, warns the American Furniture
Manufacturers Committee for Legal Trade, which filed the complaint that
upset Mr. Lin, "is our way of life, our culture and the competitiveness of
America in the world."
![[trade with China]](https://online.wsj.com/public/resources/images/P1-AB141_Chinachart01292004224148.gif)
China's emergence as a major economic power is beyond doubt. Its $1.2
trillion economy, while far smaller than the $10.4 trillion economy of
America and Japan's $4 trillion output, is on track to catch up with Japan
inside of two decades. Already, China's growing economic weight, including
a voracious consumption of crude oil, is giving Beijing commensurate
influence in geopolitics -- another power center for America to contend
with.
Also undeniable is a painful loss of U.S. manufacturing jobs to a
country where the average plant worker earns around $80 a month, less than
an American on minimum wage makes in two days. Cheap labor pushed China's
trade surplus with the U.S. to $123 billion in a recent 12-month period,
five times the gap a decade ago.
The figures, however, mask the many ways in which the world's two
biggest continental economies complement each other. China's rests heavily
on industry, with manufacturing, mining and related activities accounting
for 51% of gross domestic product, by World Bank figures. America generates
only a quarter of its GDP from industry and just 14% from manufacturing.
Services contribute nearly three quarters.
Curbing Chinese imports through tariffs or a stronger yuan would only
drive up imports from other countries, contends Stephen Roach, chief
economist at Morgan Stanley. The only real alternative, he says, is for
Americans to spend less and save more: "When Americans get frustrated with
China, they should look in the mirror."
They could also look inside things they buy from China. Take the 20
million "made in China" computer mice shipped to the U.S. each year by
onMouseOver="window.status=(' Quotes & Research for LOGI');return true"
onMouseOut="window.status=('');return true">Logitech International SA, a
Swiss-American company with headquarters in California. The mice are put
together in a six-floor building in Suzhou, a Chinese city once famous for
its Confucian gardens but now better known as a frenetic manufacturing
hub.
Mouse Called Wanda
Logitech's Suzhou parts warehouse is a microcosm of the global economy,
and helps explain why China reinforces America's role as ringmaster. Piled
to the ceiling on blue metal shelves are boxes marked with the logos of
foreign companies, from big U.S. multinationals to a small Belgian billiard
company that makes trackballs.
One of Logitech's big sellers is a wireless mouse called Wanda, which
sells to American consumers for around $40. Of this, Logitech takes about
$8, while distributors and retailers take $15. A further $14 goes to
suppliers that provide Wanda's parts: A onMouseOver="window.status=(' Quotes & Research for MOT');return true"
onMouseOut="window.status=('');return true">Motorola
Inc. plant in Malaysia makes the mouse's chips, and America's onMouseOver="window.status=(' Quotes & Research for A');return true"
onMouseOut="window.status=('');return true">Agilent Technologies Inc. supplies
the optical sensor. Even the solder comes from a U.S. company, Cookson
Electronics, which has a factory in China's Yunnan province next to
Vietnam.
Marketing is led from Fremont, Calif., where a staff of 450 earns far
more than 4,000 Chinese employed in Suzhou. China's take from each mouse
comes to a meager $3, which covers wages, power, transport and other
overhead costs.
| CHINA'S CHANGING PICTURE
The world confronting China, 25 years ago and today. | INDICATOR | THEN | NOW |
| Population | 975 million | 1.3 billion |
| Leader | Deng Xiaoping | Hu Jintao |
| Number of private sedans | 0 | 3 million |
| Fashion icon | Jiang Qing | Gong Li |
| Oil imports | 0 | 2 million barrels a day |
| Annual U.S.-China trade | $2.3 billion | $177 billion (a) |
| Trade balance | $1.1 billion surplus for U.S. | $123 billion deficit for U.S. (a) |
| Currency | Nonconvertible | Convertible in trade (b) |
| Stock trading | None | Two exchanges (c) |
| Unresolved territorial claims | Hong Kong, Macao, Taiwan, Soviet border region, South
China Sea islands | Taiwan, South China Sea islands |
(a) December 2002 through November 2003 (b) Beijing pegs yuan at 8.28 to a U.S. dollar (c)Shanghai and Shenzhen, listing 1,287 stocks in all Source: WSJ research
| |
|
|
|
Other Chinese-made products rely less on U.S. components and use
Japanese, Korean or Taiwanese parts instead. But, in many cases, the upshot
for China is the same: Foreigners get the bulk of the money. They supply
many of the parts, often own the plants in China that assemble them, and
get a markup on sales abroad. Foreign companies account for more than
three-quarters of China's high-tech exports. The Chinese Ministry of
Commerce's ranking of "China's" top 10 exporters includes two American
companies -- Motorola and hard-drive maker onMouseOver="window.status=(' Quotes & Research for STX');return true"
onMouseOut="window.status=('');return true">Seagate
Technology.
Logitech, like most tech, toy and textile companies with plants in
China, employs mostly young women such as Wang Yan, an 18-year-old from the
impoverished rural province of Anhui. She is paid $75 a month to sit all
day at a conveyor belt plugging three tiny bits of metal into circuit
boards. She does this 2,000 times a day. To earn extra money, she gets up
at 6 a.m. to tidy the dormitory space she shares with a dozen fellow
workers.
This is her second stint in a factory. Before coming to Suzhou, she
skipped school to become an underage worker at an electronics plant not far
from Mr. Lin's furniture company in Dongguan. She complains about her
salary but isn't going back to her village. That would mean only "eating
bitterness," she says.
China's pivotal role in the global supply chain buttresses a pillar of
foreign policy dating all the way back to 1899, when the U.S. pushed for an
Open Door Policy making China's ports available to all. In turn, China's
trade opening to the world in the past two decades softened its
once-antagonistic foreign policy. Last year, as the U.S. prepared to invade
Iraq, Beijing stood aloof from the Paris-Berlin-Moscow axis of outspoken
opposition. It has offered the U.S. some help trying to curb North Korea's
nuclear ambitions.
China's explosive growth as an exporter, though distressing for many
American plants, prods the U.S. in a direction it has been moving for
decades. Hooker furniture, which now imports more than 40% of the furniture
it sells, mirrors this shift, scaling back on domestic manufacturing but
expanding in services such as design, distribution and marketing.
Meanwhile, other American companies, such as onMouseOver="window.status=(' Quotes & Research for INTC');return true"
onMouseOut="window.status=('');return true">Intel Corp., focus on making
high-end products, many of which end up in goods sold in America as "made
in China."
China also does well out of an arrangement that provides millions of
jobs, lets China steadily increase military spending and has created the
biggest foreign-currency reserves after Japan's. Because of the U.S. debt
habit, the arrangement also leaves China with leverage over America.
Borrowing Habit
The U.S. has been a net capital importer since at least the 1980s. This
is in stark contrast to Britain at the height of its imperium before World
War I, when the British had net foreign assets valued at 150% of their own
GDP. America, though often described as Britain's successor as the world's
dominant power, does the opposite. Recent figures from the Commerce
Department's Bureau of Economic Analysis show that foreign holdings of U.S.
stocks, bonds and other assets exceeded America's foreign assets to the
tune of $2.3 trillion -- or 22% of GDP -- at the end of 2002.
"America is certainly a hegemon and may be occupying Iraq but,
economically at least, it does the opposite of what Lenin described as
imperialism," says Angus Maddison, a British economist whose many books
include a survey of the world economy over the last millennium.
| MILESTONES
1979: Deng steers post-Mao China on "capitalist road" 1981: China convicts "Gang of Four" radicals, including Mao's widow, Jiang Qing 1989: China crushes pro-democracy protest in Tiananmen Square ![[stock exchange]](https://online.wsj.com/public/resources/images/1990SHChina01302004045508.jpg) 1990: Reopens Shanghai Stock Exchange, closed since '49 revolution (a) 1997: Deng dies; China regains Hong Kong from British 1999: Regains Macao, enclave Portugal had held since 16th century 1999: Protests as U.S. accidentally bombs Chinese embassy in Belgrade 2000: Cracks down on Falun Gong quasi-religious group 2001: Joins World Trade Organization 2001: Chinese jet collides with U.S. spy plane over South China Sea, prompting diplomatic standoff 2002: Communist Party says it will admit capitalists ![[sars]](https://online.wsj.com/public/resources/images/2003SARSChina01302004045508.jpg) 2003: SARS outbreak (b) 2003: U.S., Japan urge China to float yuan; it declines (c) 2003: Mass march for democracy in Hong Kong (a) Shanghai and Shenzhen, listing 1,287 stocks in all (b) December 2002 through November 2003 (c) Beijing pegs yuan at 8.28 to a U.S. dollar Source: WSJ research
| |
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Tax cuts, spending in Iraq and other factors have stirred alarm among
some economists that America's debt is getting out of control. A recent
International Monetary Fund report said America's net foreign obligations
could rise in a few years to 40% of GDP, and warned of an "unprecedented
level of external debt for a large industrial country."
China didn't create this potentially unstable edifice, but it does, at
least for the time being, help to keep it upright. China has loans
outstanding to the U.S. government of more than $120 billion, in the form
of Treasury debt that China owns. It holds probably that much again in
Fannie Mae and other dollar-denominated debt securities.
Contrast that with what U.S. companies have invested in Chinese plants
and equipment -- not a direct comparison, by any means, but revealing
nonetheless. This "foreign direct investment" stood at $10.2 billion at the
end of 2002, according to the Bureau of Economic Analysis, about
one-twenty-fifth the level of China's U.S.-securities holdings. The Chinese
government offers a much higher figure for U.S. investment in China but
still far below the value of Chinese holdings of U.S. debt.
America's addiction to foreign money hands China and other potential
adversaries a weapon, some influential voices warn. Among them is Aaron
Friedberg of Princeton University, an authority on Britain's imperial
decline who is now a national security adviser to Vice President Dick
Cheney. Mr. Friedberg wrote in a 2000 article in Commentary that China
could one day dump its dollar assets to "trigger a run on the dollar, an
increase in U.S. interest rates and perhaps a stock-market crash."
But China has reasons of its own to buy dollar assets -- reasons that
show how intricately the officially Marxist country fits into a U.S.-led
world economic order. As China lends to the U.S. by buying U.S. government
notes, it stows in a safe place the vast surplus cash its export economy
generates.
Meanwhile, its buying of dollar assets buttresses another Chinese
policy: keeping the yuan pegged at a low exchange rate against the
greenback. Every time China buys a Treasury note it sells yuan. This
selling helps stop the yuan from rising. By keeping its currency cheap,
China keeps its exports especially inexpensive abroad -- one of the trade
policies the U.S. complains about.
The Chip Trade
What worries some Americans most isn't the loss of menial jobs to tens
of millions of Chinese such as Ms. Wang but a migration of white-collar
work as China moves up the economic ladder. A Godzilla role once played by
Japan is now assigned to China, and sometimes India. "When you hear that
Intel, IBM and Goldman Sachs plan to move high-end jobs to China and India,
what's going to be left here -- restaurants?" asked Democratic Sen. Charles
Schumer of New York at a Banking Committee hearing last year.
A study of the U.S. semiconductor industry's moves abroad, headed by
Democratic Sen. Joseph Lieberman of Connecticut, said, "What is at stake
here is our ability to be pre-eminent in the world of ideas."
Intel now produces more than 50 million chips a year in China. Most end
up in computers and other goods for export.
Yet Intel's main facility, a $500 million plant in Shanghai, doesn't
really make chips: It tests and assembles them from silicon wafers made in
Intel plants abroad, mostly in the U.S. China adds less than 5% of the
value. The U.S. generates the bulk of the value, and the profits.
Motorola, by contrast, does make chips in China, and has been far less
successful. Its $1 billion plant in Tianjin has been plagued by problems.
As part of a strategic rethink, Motorola has announced plans to transfer
the facility to Semiconductor Manufacturing International Corp., a company
based in China but partly owned by non-Chinese.
Attempts by domestic Chinese companies to make sophisticated
semiconductors have a mixed record. Making high-end chips requires hugely
expensive, imported equipment and does not play to China's natural strength
in cheap labor. To try to overcome this, the government has been offering
tax and other incentives in a big push reminiscent of an earlier drive to
build up a large auto industry. This suggests the big competitive advantage
China enjoys in labor-intensive manufacturing isn't easily transferred
upward.
Whose Profits?
How much U.S. multinationals profit from their Chinese operations is
hard to assess. Most book their earnings through Hong Kong or other
offshore locations with low taxes. Bureau of Economic Analysis data,
however, give a rough guide. American companies, after losing money in
China in the 1980s and having minimal earnings for much of the 1990s,
reported net income from their China affiliates of $755 million in 1999 and
double that in the first three quarters of 2003. If income from Hong Kong
affiliates is included, American corporate earnings from greater China
totaled $5.16 billion in the first three quarters of 2003, about the same
as earnings from Japan.
"Americans are getting a great deal in China," says Huang Yasheng, a
Massachusetts Institute of Technology professor and critic of a model he
says benefits foreigners and state-owned Chinese concerns at the expense of
Chinese entrepreneurs. China, he says, "produces zillions of
low-value-added things, but this is a miracle of volume, not a miracle of
value. ... Americans get cheap goods and then get to borrow money from
China at pathetic rates."
America's China deal looks pretty good from Frank Lin's furniture
factory in Dongguan, operated by Glory Oceanic Co., a Taiwanese-owned
company of which he is president. Mr. Lin makes low-cost, high-quality
furniture that allows U.S. companies better margins than on their U.S.-made
goods. He buys wood from America and coats it with lacquer from a Dongguan
factory that is run by Americans, uses American chemicals and flies an
American flag. (The lacquer factory, owned by Akzo Nobel of the
Netherlands, briefly hoisted a Dutch flag at the start of the Iraq
war.)
Also now benefiting is a group of Americans that Chinese furniture
makers wish they didn't need: Washington trade lawyers. Mr. Lin and fellow
factory bosses -- most from Taiwan -- have chipped in $2 million to defend
their business against complaints of "dumping" -- selling for less than
fair-market value. After preliminary hearings, the U.S. International Trade
Commission ruled this month that domestic furniture makers have been hurt
by imports. The Commerce Department must now decide whether this is due to
illegal pricing by the Chinese, and whether to impose duties, theoretically
as high as 440%.
A Show of Hands
To plan strategy, a "defense committee" set up by Chinese furniture
makers has been holding meetings in the ballroom of Dongguan's Fu Ying
Hotel. At one gathering last year, the chairman read a list of U.S.
companies that initiated the antidumping complaint and asked plant bosses
to raise their hands if they made goods for any of them. Mr. Lin raised his
hand four times. Many other hands also popped up, revealing that more than
half of the U.S. furniture companies claiming concern about Chinese imports
were themselves importers.
U.S. buyers, Mr. Lin said, "come here and go chop, chop, chop on our
asking price and then complain that we are selling too cheaply." His
warehouse was stacked with boxes full of furniture ordered by Hooker and
marked with Hooker's corporate insignia.
Hooker's chief executive, Paul Toms, says he joined the antidumping
petition to be "fair to our employees," and notes that it targets only
bedroom furniture. Hooker and other supporters of the petition make most of
their bedroom furniture in the U.S. "The last thing we want is to have the
Chinese believe we are against them," Mr. Toms says, because imports from
Asia "have been responsible for all our growth and a lot of the profit over
the last few years." China, he says, is "both a threat and a great
opportunity."
Mr. Lin and his colleagues said they were considering withholding
shipments to U.S. companies that signed the petition. Scrambling to avoid a
disaster for their businesses, Hooker and other importers rushed executives
to China to try to calm tempers. In his e-mail, Mr. Toms assured Mr. Lin
that, despite Hooker's joining the claims of illegal trade by China, he
didn't think Mr. Lin had done anything "illegal or unethical."
Caught in the middle are scores of Americans working in Dongguan's
furniture factories, lacquer-mixing plants and related enterprises. Smeared
with sweat and sawdust after a day of supervising quality at a factory
here, Karen Lanning and Bill Ward, both veteran furniture makers from North
Carolina, swapped theories on what lay behind the importers' anti-import
campaign.
"The whole thing is so goofy it must be politics," said Mr. Ward, aged
52. "It's a perfect platform: Wave the flag and whip up the crowd." Ms.
Lanning, 49, who moved to China when factories back home began to close,
blamed a failure to face economic reality by American furniture companies.
"It breaks my heart to see workers lose their jobs at home, but we all
picked up in our late 40s and 50s and came over here," she said. "This is
evolution. You can't stop it."
Yasheng, a
Massachusetts Institute of Technology professor and critic of a model he
says benefits foreigners and state-owned Chinese concerns at the expense of
Chinese entrepreneurs. China, he says, "produces zillions of
low-value-added things, but this is a miracle of volume, not a miracle of
value. ... Americans get cheap goods and then get to borrow money from
China at pathetic rates."
America's China deal looks pretty good from Frank Lin's furniture
factory in Dongguan, operated by Glory Oceanic Co., a Taiwanese-owned
company of which he is president. Mr. Lin makes low-cost, high-quality
furniture that allows U.S. companies better margins than on their U.S.-made
goods. He buys wood from America and coats it with lacquer from a Dongguan
factory that is run by Americans, uses American chemicals and flies an
American flag. (The lacquer factory, owned by Akzo Nobel of the
Netherlands, briefly hoisted a Dutch flag at the start of the Iraq
war.)
Also now benefiting is a group of Americans that Chinese furniture
makers wish they didn't need: Washington trade lawyers. Mr. Lin and fellow
factory bosses -- most from Taiwan -- have chipped in $2 million to defend
their business against complaints of "dumping" -- selling for less than
fair-market value. After preliminary hearings, the U.S. International Trade
Commission ruled this month that domestic furniture makers have been hurt
by imports. The Commerce Department must now decide whether this is due to
illegal pricing by the Chinese, and whether to impose duties, theoretically
as high as 440%.
A Show of Hands
To plan strategy, a "defense committee" set up by Chinese furniture
makers has been holding meetings in the ballroom of Dongguan's Fu Ying
Hotel. At one gathering last year, the chairman read a list of U.S.
companies that initiated the antidumping complaint and asked plant bosses
to raise their hands if they made goods for any of them. Mr. Lin raised his
hand four times. Many other hands also popped up, revealing that more than
half of the U.S. furniture companies claiming concern about Chinese imports
were themselves importers.
U.S. buyers, Mr. Lin said, "come here and go chop, chop, chop on our
asking price and then complain that we are selling too cheaply." His
warehouse was stacked with boxes full of furniture ordered by Hooker and
marked with Hooker's corporate insignia.
Hooker's chief executive, Paul Toms, says he joined the antidumping
petition to be "fair to our employees," and notes that it targets only
bedroom furniture. Hooker and other supporters of the petition make most of
their bedroom furniture in the U.S. "The last thing we want is to have the
Chinese believe we are against them," Mr. Toms says, because imports from
Asia "have been responsible for all our growth and a lot of the profit over
the last few years." China, he says, is "both a threat and a great
opportunity."
Mr. Lin and his colleagues said they were considering withholding
shipments to U.S. companies that signed the petition. Scrambling to avoid a
disaster for their businesses, Hooker and other importers rushed executives
to China to try to calm tempers. In his e-mail, Mr. Toms assured Mr. Lin that, despite Hooker's joining the claims of illegal trade by China, he
didn't think Mr. Lin had done anything "illegal or unethical."
Caught in the middle are scores of Americans working in Dongguan's
furniture factories, lacquer-mixing plants and related enterprises. Smeared
with sweat and sawdust after a day of supervising quality at a factory
here, Karen Lanning and Bill Ward, both veteran furniture makers from North
Carolina, swapped theories on what lay behind the importers' anti-import
campaign.
"The whole thing is so goofy it must be politics," said Mr. Ward, aged 52. "It's a perfect platform: Wave the flag and whip up the crowd." Ms. Lanning, 49, who moved to China when factories back home began to close,
blamed a failure to face economic reality by American furniture companies. "It breaks my heart to see workers lose their jobs at home, but we all picked up in our late 40s and 50s and came over here," she said. "This is evolution. You can't stop it."
作者：wanderer 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
