By Howard Gold
NEW YORK (MarketWatch) -- Americans won't be spectators in China's coming changes -- we will be deeply involved, whether we like it or not.
That's because the critical transition China is going through will affect our businesses and our livelihoods.
As I laid out in my last two columns, China is trying to move from being an export-oriented manufacturer to boosting domestic consumption, developing the country's interior, and becoming a more technologically advanced, high-value-added economy. Read "Seeing China's Next Challenge Up Close" on MoneyShow.com.
That will inevitably spur more conflicts with the U.S., Europe, and Japan about currency and trade issues and intellectual property. Some companies are seriously reevaluating their investments in China, which once looked like the Promised Land.
Week ahead in Europe
Banks including HSBC, BNP-Paribas and Societe Generale report earnings. Bank of England, European Central Bank announce latest interest-rate decisions.
And American businesses and workers shouldn't expect much relief in the competitive pressures China is putting on prices and wages. China's transition is bound to be gradual, and in the meantime it needs to keep revving up its export machine to spur growth.
"I see the next 10 years as more driven by friction as the Chinese compete with the Europeans, Japanese, and Americans," says Christopher McNally, fellow of the East-West Center and an expert on China.
Friction indeed, epitomized by the recent rant by Jeffrey Immelt, chief executive officer of General Electric /quotes/comstock/13*!ge/quotes/nls/ge (GE 16.43, +0.31, +1.92%) , at a private dinner in Rome, according to the Financial Times. Read FT story about Immelt's outburst.
Immelt, of course, tried to walk that quote back, but he's not the only one complaining. We all know about Google Inc.'s /quotes/comstock/15*!goog/quotes/nls/goog (GOOG 490.46, +5.61, +1.16%) travails in China, and Microsoft Corp.'s /quotes/comstock/15*!msft/quotes/nls/msft (MSFT 26.33, +0.52, +2.02%) constant kvetching about software piracy there over the years.
Even the stodgy Germans are objecting -- and they're among the most successful exporters to China.
"Two of Germany's leading industrialists -- Jürgen Hambrecht, chairman of chemical giant BASF SE and Peter Löscher, chief executive of conglomerate Siemens AG /quotes/comstock/13*!si/quotes/nls/si (SI 102.27, +4.88, +5.01%) -- raised complaints about a range of Chinese policies toward foreign business during a public meeting with Chinese Premier Wen Jiabao and visiting German Chancellor Angela Merkel," The Wall Street Journal reported. Read WSJ story.
"The concerns center on policies that foreign executives feel put them at a disadvantage against increasingly potent Chinese competitors, or compel them to transfer valuable technology to China," the Journal reported.
Howard GoldOne Japanese consortium led by Kawasaki Heavy Industries learned that lesson the hard way when it joined a Chinese company, Sifang, to manufacture "bullet trains," for which the Japanese are world-renowned.
But by two years into the six-year deal, "Sifang had 'digested' all the technology required for their manufacture," the FT reported.
Result: China had its bullet trains, and Sifang, not the Japanese companies that originally provided the technology, will likely reap the rewards of supplying China's rapidly growing high-speed rail network -- and those of other countries, too.
So, thank you very much. Now, go home.
Don't get me wrong: I'm not trying to demonize China, which is acting thoroughly in its own self-interest. Along with honest innovation, theft of ideas is just part of capitalism.
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More Outside the Box
| July 30, 2010 | A dose of realism is just what the market needs | |
| July 24, 2010 | As China grows, massive hurdles loom | |
| July 23, 2010 | Market-timing indicators are bearish | |
| July 22, 2010 | Financials still looking weak | |
| July 20, 2010 | Double dip looks doubly certain |
Billion003 1 day ago
In this upside-down world, does this make the average citizen who buys foreign goods a patriot...at least according the present administration? My other choice, at least in regard to automobiles, is to buy union made vehicles built by workers making $72 an hour.
Seems like there would be some middle ground somewhere.
Devaarma 1 day ago
debitumadmortem 1 day ago
carryhold 1 day ago
As mentioned in the article, China doesn't want to be known as a Made In China country for ever. There seems to be some pros and cons to this. At one point they want to be known as a Made In Japan or a Made In Germany kind of country and with all the developed countries so eager to hand over there technology to China in the name of bigger profits means that China just might be considered a country that produces quality at a lower price, here in the near future.
We should be careful. Another angle is that history has shown us how Japan once played catch up with the rest of the world as well and at one point we had to tell them to lay off and mellow out and it took 4 years, lots of lives and a couple of nukes to do it. China has over 1.3 billion people, thats an extra 1 BILLION over us in population. And with there drive to build up there interior as mentioned in the article, we could have more than economic problems ahead of us or as the author said, friction. So with them learning a lot from the west as Japan was doing durring the U.S. civil war erra, you never know, the U.S. may be making all of Chinas junk one day.
In short, as a result of the desire for bigger and bigger profits, the U.S. and other countries are literally handing over there economies and technologies to China on a gold plated, diamond encrusted, platinum platter.
In my opinion, if the Roman and British Empires fell then over time the U.S. could as well, especially if we are so hung up on bigger and bigger short term profits at any cost.
I really, really miss the post WWII golden age of the previous 20th century.
All hale to the peoples republic of the united states of china
Friction indeed