Shaking the world: The economic ascension of China

"Let China sleep, for when she wakes, she will shake the world." Napoleon's words seem to be the inspiration behind the title of James Kynge's book, "China Shakes the World: A Titan's Rise and Troubled Future — and the Challenge for America." Kynge's book centers on "the appetite that the world's most populous nation unleashed on the planet in the first few years of the twenty-first century" and, more specifically, how that appetite has affected the world; how it has affected China itself; and the price that the world has paid for the behemoth's economic ascension.

"Let China sleep, for when she wakes, she will shake the world." Napoleon's words seem to be the inspiration behind the title of James Kynge's book, "China Shakes the World: A Titan's Rise and Troubled Future — and the Challenge for America." Kynge has been a journalist in Asia for more than two decades.

His book centers on "the appetite that the world's most populous nation unleashed on the planet in the first few years of the twenty-first century" and, more specifically, how that appetite has affected the world; how it has affected China itself; and the price that the world has paid for the behemoth's economic ascension.

How China affects the world

One of the most apparent, significant ways that China affects the world is in its ability to manufacture products of comparable quality at a fraction of the cost of manufacturing them in developed countries. Visceral reactions to this effect, Kynge writes, center around "the debate over the outsourcing of American jobs, perceptions of China's unfair trading practices, Chinese piracy of Western intellectual property, and several other irritants in the commercial relationship."

Westerners consider less often the positive effects of China's economic ascension. Some of those positive effects, Kynge writes, are that "the cost of consumer products has fallen significantly for U.S. buyers, and the downward pressure on retail prices has helped to keep American interest rates low — which has in turn powered a real estate boom."

One problem with the lopsided view of China's economic impact on countries like the U.S. is that it can lead to limitations on free trade — which actually hurt those seeking protection as much as anyone. "But such decisions," Kynge suggests, "rarely come down to dispassionate economic analysis; they turn instead on the perceptions of electorates — people [in one of] a thousand places reeling from China's manufacturing might. And there's the rub."

Kynge spends most of the book telling stories that illustrate China's economic successes and failures. He also touches — albeit briefly — on the question of why manufacturing jobs are moving from the U.S. and Western Europe to China. In the U.S., local manufacturing jobs were exported to China because Chinese manufacturers could beat U.S. manufacturers' prices by 70 percent or more.

Why? Expensive labor and bureaucratic red tape and regulations that add more than 20 percent onto the cost of manufacturing in the U.S. are two key reasons. But the availability of cheap labor in China hasn't been bad for all manufacturing businesses in the U.S. and Europe — while small and mid-sized companies have suffered from the inability to compete with China, large multinational companies have been able to leverage low-cost labor in China for their own benefit.

"Pulling up stakes and shifting to a place like China, with its welter of regulations and customs, represents a cost and a risk that most medium-size and family-run businesses are unable or unwilling to absorb. The result is that the beneficiaries of the cheap, diligent, and often skilled labor available in China are overwhelmingly the multinationals," Kynge writes. China's impact is uneven on an individual level, too. Kynge writes that "the powerful, the international, and the wealthy are reaping huge benefits, while those in the middle are suffering in either relative or absolute terms."

How China affects itself

But the effects of China's economic rise have not all been external. In the first part of his book, Kynge relates a number of uplifting anecdotes about unemployed, poor, rural Chinese, denied formal education during Mao's Cultural Revolution, who were able to rise up and form successful private companies. Kynge ends the book with a reiteration of the stories we hear so often, about the oppressive State government that reins in or out free enterprise as it benefits the State.

Kynge says that government flip flops between periods of liberalization and periods of consolidation of State power coincide with periods of economic booms and busts. During busts, the government is compelled to release the reins on economic activity; during booms, it brings them in. "The waves of activity created by this interplay of government fear and covetousness define the economy's momentum," Kynge writes.

In Kynge's stories about poor rural Chinese who have found success in private enterprise, unemployment was often a blessing in disguise. In the late 1970s and early 1980s, those who spent the Cultural Revolution "learning from the peasants" in the countryside flooded back into the cities, but there weren't enough jobs to support all of the people.

"Beijing felt that it had no choice but to allow them to indulge in minor private business," Kynge writes.

Some of those minor private businesses have flourished and made multi-millionaires out of their founders. Indeed, Kynge suggests that one of the principal motivators behind China's rise as a manufacturing giant has been population pressure. "Even when the economy grows at 9 or 10 percent, it fails by a margin of several million to create the 24 million new jobs required each year.

So while China appears to the rest of the world to be enjoying an amazing growth bonanza, the officials working behind the high walls of their leadership compound in Beijing feel trapped in an endless employment crisis," writes Kynge. That population pressure creates, for one, "a tendency among companies to carry on producing, or even expand production, long after any discernible profit margin has vanished."

Contrary to conventional practice and, often, to economic sense, this has led to a chronic oversupply of manufactured goods in China (according to Kynge, around 90 percent of China's manufactured products were in oversupply in 2005). That oversupply is one reason why many of China's products are so cheap.

Population pressure — and the continued surge of Chinese people from rural areas into cities — has also given China its large base of cheap labor. "Around 700 million people are thought to get by on less than two dollars a day. That provides a huge pool of labor that is willing to work at preindustrial wages … as long as there are factories being built … there will be robust demand for the labor of farmers' children," Kynge writes.

The price of China's rise

But the price of China's rise has been steep. That environmental degradation is one effect of China's rise is not new, Kynge says — China's environmental problems have existed for decades. "But what is new — and world-shaking — is the projection of this environmental exhaustion into the international arena," he writes.

The figures that Kynge cites are shocking: Five out of every ten tropical logs shipped worldwide are imported by China; 44 percent have been felled illegally. Brazilian farmers clear forests at a rate of six soccer fields every minute to plant soy fields for Chinese consumers. Carbon dioxide emissions from China increased 33 percent between 1990 and 2002; a plume of polluted air over New England was found to have come from China.

Part of the problem, according to Kynge, is that China is already environmentally exhausted. "The main catalyst behind China's appetite is the mismatch in the size of its population and its resource base. But that is not the only cause; another is the decades of wasteful exploitation and disrespect for the environment that characterized the Communist era."

In countries where local officials can be held accountable by citizens, environmental conservation — most important to those citizens who have to live with the direct and immediate effects of local environmental degradation — can be successful. But such accountability is largely absent in China. And the cost of paying for China's rise would be enormous. "It is clear," Kynge writes, "that repairing the devastation [China] has suffered is a task so onerous that it could slow down, or even derail, the country's stellar economic trajectory."

The future of China in the world

The key to China's future, Kynge writes in his last chapter, will be the extent to which the world — notably Europe and the United States — allows China to continue its ascent. "With trade amounting to more than two-thirds of the size of China's economy (compared with around a quarter for other large economies), Beijing is clearly vulnerable to the protectionism that might follow a withdrawal of the West's goodwill," Kynge writes.

While a complete shutdown of trade between China and the West is unlikely, even a "partial pruning of commercial links or a gradual upsurge in Western protectionism toward China" would "have profound effects" not only on China, but on the rest of the world as well. If China could reform its system in response to concerns coming from the West, that would go far in smoothing economic relations. But Kynge wonders if that will be possible.

"Beijing, goaded by its insatiable appetite, may have no room to cede ground to American public opinion, creating an impasse that could trigger progressively stronger counter-reactions from the White House." Tensions between China and, in particular, the U.S., reinforce what Kynge calls globalization's "most fundamental limitation."

"Although trade increases the mutual economic dependence of countries that engage in it, trade does not make the peoples of those nations any fonder of each other," Kynge writes. On the other hand, Kynge sees "flexibility and pragmatism" that may prevent a gloomy future for China and the world. He writes that "China is perhaps too much wedded to the world, too deeply insinuated into its organizations and treaties, and too dependent on others to bite the hands that feed it."

Bottom line:

• China's low-cost manufacturing has led to a reduction in prices of manufactured goods and a transfer of manufacturing jobs from the U.S. and Western Europe into China — two of the most significant effects that China has had on the world.
• The Chinese government's flip flops between periods of liberalization and periods of consolidation of State power coincide with periods of economic booms and busts.
• The price of China's rise — especially when measured in terms of global environmental degradation — has been steep. But the cost of reversing that degradation could cripple the country's economic boom.
• The key to China's future will be the extent to which Western Europe and the United States allow China to continue its ascent.