Is China the new global star?

Q: What role does China play on the global stage at this point?
Clearly China is a major player economically. It holds an immense amount of American debt, has large foreign currency reserves, and is among the biggest markets for oil, platinum, and all of the rare earth metals.

As a global citizen, they are a rising player. They have leadership roles through the UN and other international organizations in which they invest time and expertise, but their priority is to become a dominant global economic power. Or, from the Chinese perspective, to return to their past global eminence.

Little recognized in the U.S. is the fact that China historically has been a global economic giant. In 1820 China had 36% of the world's population, 32% of the world's GDP, and per capita GDP was 90% of the world average. Over the 19th century, their share of world GDP dropped to 9% while in terms of population they continued to be the world's giant. Since the economic reforms and the one-child campaign starting in 1980, China has rapidly improved their global standing. In 2008, they were 19% of the world's population, produced 11% of world GDP, and their per capita GDP was 61% of the world's average. It won't be too long before their relative rankings reach or exceed those of 1820.

To many observers, China is succeeding where others have failed. As a result, people in the developing world ask, how can we be like China? And people in the OECD nations ask, what are the most exciting and important opportunities for partnership? A lot of the emphasis has been, appropriately, on manufacturing. But I think the financial arena is going to be very interesting. The Chinese are going to push hard. They're going to ask whether we should have a different world currency. And whether or not the next head of the IMF should come from Beijing.

Q: How integrated into the global system are the Chinese people?
That's a difficult question to answer — you can't generalize about an entire society, but should we have a graph to represent integration in global economies, I would guess we would see a steady upward climb. In the last 30 years, hundreds of thousands of university graduates have gone into government service. Many were sent overseas by the government for formal study or internships; others went abroad on their own and now they are returning. They speak English and often a second foreign language. They can be sophisticated world citizens. One finds a similar, even more pronounced trend in the private sector. People who were born and trained in China have joined global firms that take them elsewhere. Those who went abroad return to form their own companies or work with international partners.

Another source of integration is the phenomenon of “Greater China,” or those living in the diaspora of about 56 million Chinese in Southeast Asia, North America, and Taiwan. These overseas Chinese work disproportionately in commerce and industry where they have had a comparative advantage in building the manufacturing and retailing sectors that initially were closed to non-Chinese. The PRC has been very adroit in its interaction with Greater China.

Internet connectivity also increases China's internationalization. Since 2007, China has had the largest number of internet users and bloggers in the world. As in other countries, the heaviest users are well educated young adults who are the future.

When experts in market research advise clients on how best to connect with Chinese consumers, they usually begin by dividing the 25 largest cities into three tiers. First-tier cities like Shanghai, Guangzhou, and Beijing are as internationalized as many global cities in the West. Ten years ago the push was to reach the second tier, and more recently entrepreneurs are focused on the more than 400 million customers in the third tier. I wouldn't say every county town has international franchises, but they reach pretty deep.

Q: Are there various attitudes within the country on globalization?
As a sociologist, I would want a survey before giving a global answer. Given that I don't have such a survey I will just draw on a few personal experiences when teaching in Beijing and Shanghai in the past year. Overall, I would say that the students I taught were almost uniformly positive about globalization. From their perspective, globalization has reconnected China to the world, made China an economic powerhouse, and given them a pathway to improve the everyday lives of themselves and their families. For them, globalization is the story of the future. American students are much more critical. Even before this meltdown, American students would be much more likely to link globalization and loss of jobs.

In fact, the Chinese economy lost 30 million blue-collar manufacturing jobs when globalization brought investors to greenfields locations in South China and left inefficient, old heavy industrial plants in the northwest and northeast to rot. It was one of the most rapid hollowing outs of an industrial heartland in peace time. If such an implosion had happened in Europe or the United States, politicians and scholars would be discussing the relative costs daily. In China, the focus is on the millions of young farmers who went into industrial manufacturing for export and created China's huge foreign reserves. Part of their forward perspective is that recently good news trumped bad news. But were we to go back to 1998 or 2000 I think we would have heard more globalization naysayers. In China, as elsewhere openness varies by the health of the domestic economy.

Q: Describe the interaction of China's manufacturing sector and internal markets.
Manufacturing is still driving economic gains, but for a decade or more it has been jobless growth. A lot of attention is now being paid to how to move up the food chain, how to become more capital intensive. We saw that when Lenovo bought IBM's PC business and with the effort to expand the automobile industry for foreign as well as domestic markets. But investment in low-end manufacturing remains profitable; China isn't immediately going to abandon the low end.

China produces consumer durables domestically, and they have a very developed market. As an example, if you go back 20 years, they weren't really producing air conditioners. Hospitals and high-rise towers had AC, but often used old-fashioned Russian technology. The best units were Japanese. Now there are domestic brands that compete with Hitachi. Because of the size of the China market, the steadily compounding household growth, the pent-up demand, and the desire for ever-higher quality, Chinese firms in the consumer sector are profitable. And the market isn't saturated. That's why China's stimulus plan is directing purchasing power inward.

In the last year, some export subsidies have been retargeted to spur domestic consumption. Supports previously aimed at the export of air conditioners, computers, refrigerators, and microwaves now provide tax holidays or rebates to let rural retailers in the interior sell the products more cheaply. The government wants to keep manufacturing employment high and stimulate consumer demand.

Although I have not seen any detailed accounting, from general sources it appears that the stimulus package is targeted at infrastructure development and getting people to buy manufactured goods. But many argue that until there is major expansion of health insurance and pension programs, household savings rates will remain at 40% and consumer spending will not spur macro-growth. The challenge is how to increase people's sense of security so that they spend more.

Q: Can we look to China's megacities as potentially informative about how other world cities might look in the future?
There are three things that make Chinese cities somewhat sui generis: the system of comprehensive household registration, the one-child policy, and government ownership of urban land. Because these three elements have such profound impact on how Chinese cities have evolved, it's hard to imagine cities elsewhere resembling China in the near future.

First unlike any other large, developing country, the Chinese government actually maintains a comprehensive registration of the population which they update regularly. Every adult has one officially registered place of permanent residence and if necessary the police can require people to leave the city and return to their home village. Until the early 1990s, when food rationing was eliminated, the registration system determined what and where people could buy all basic food staples. Ration tickets for urban families were valid only for certain locales and rural residents were denied any ration tickets on the presumption that they could provide their own food. Even teenagers who left their villages to go to school were required to bring their provisions from home to the school canteen. Needless to say, such controls over food and legal residency radically curtailed job and residential mobility. Rationing stopped in 1992. But the system of household registration remains in effect in all large cities. Recently some city governments have taken steps to reduce the benefits of having an urban registration, but there's no sign that they are going to eliminate the system.

The second key difference between China and other developing countries is the success of the one-child policy among women of all educational and economic strata. There are many ways in which the one-child policy might be dysfunctional, most notably the distorted excess number of men to women under the age of thirty, and it is likely that in the next five years we'll see some modification to allow a second child. Nevertheless, one can think of no other country in the world that is having this discussion, much less dealing with the demographic reality.

The final difference is state ownership of all urban land. Land monopolies exist elsewhere, but the scale and effectiveness of government control over urban use in China is beyond what any other developing country has done. In short, because the Chinese government owns the land, dictates fertility, and can — if necessary — come close to controlling movement in and out of urban areas, Chinese cities will continue to be distinctive, even unique megacities.

Q: How do we look at environmental issues in China?
I feel very strongly that environmental issues need to be seen as global. You can find plenty of examples of mistakes in the United States and anywhere else in the world. That said, pollution is terrible in China. In the last 30 years, the water table has been ruined — only 60% of the water can be used now. Nobody has figured out how to clean it. I'm an optimist. I think technology will create a solution. But the Chinese ecosystem is extremely fragile.

The key to improvement is to overcome China's sense that the rest of the world has just exported their pollution to China. This is an argument you hear in China from people in all walks of life. Why are you screaming at us? We've taken your dirty jobs. And in fact, they have a point. Certain kinds of manufacturing moved from Indiana to southern China. Pollution went down in Indiana and in southern China they have no clean water. Of course, that is a caricature, but it captures some of the trade-offs we need to confront.

Going forward, I think the Chinese are absolutely willing to work with the rest of the world. They can be great partners if you build alliances that incorporate as many players as possible and mobilize shared ideals.

Interview conducted and edited by Ted O'Callahan