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September 3, 2012

China's Unstoppable Relevance


I recently returned from China. While on my flight back, I came to the realization that although I teach about China, I had missed the point when it comes to that country's profile. I kept thinking about how Taipei, in Taiwan, a democracy, with all its tall gray buildings, seemed more like a communist country than China. In contrast, Hong Kong seemed more like Manhattan on steroids.

The communism I saw in Hong Kong and Macau, although I must note these two countries are China's "Special Administration Regions," is a true example of capitalism at its core. In contrast to the West and most advanced economies, unemployment in Hong Kong and Macau is only 4 and 2 percent, respectively. Hong Kong has the most skyscrapers of any city in the world, as well as the most Rolls Royces. Macau's per-capita income is $68,000, in contrast to $48,000 in the U.S.

But what impacted me the most during my 21 days there was its people's optimism, in contrast to the constant cynicism and negativity in the West. People in China, young and old, are striving for more.

China's general macroeconomics are very promising: It scores well for stable inflation, external financial position, government debt, investment levels, and openness to foreign trade. At the micro level, it falls just below average on corruption and use of technology. But the latter is changing very quickly.

I come to realize there is simply no overstating China's importance to all of us, particularly the West. We must realize, like it or not, that the entire planet is and must be invested in China's success. Any doubts? In 1995, China's economy was worth about $500 billion. In just 16 years, it grew more than tenfold. By 2001, its economic output was smaller than that of the United Kingdom and France. Today, China is the world's second-largest economy.

It will be very hard for China to maintain its consistent 9- to 10-percent annual growth rate. They will slow down; the question is how much and how smoothly. The government has announced a 7-percent growth rate for its 12th five-year plan. That will be best for its economy and people so policy makers can better focus on the quality of the growth, instead of sheer quantity. The good news is that China doesn't have to keep the 10-percent growth pace to continue to grow and surpass the U.S. to become the world's largest economy. But for now, China's economy is only about one-third the size of the U.S. economy in compatible dollar terms.

It seems China's 80-million member Communist Party is not just the world's largest political party but also its biggest chamber of commerce. That can be worrisome, as China's influence and impact on advanced and emerging markets is great. The Eurozone crises have many in the U.S. worried. As the Eurozone deteriorates, it will definitely impact Wall Street and the U.S. economy. But anything that happens in China is far more important and impactful.

Dr. Marcus Goncalves is assistant professor of management and chair of the International Business Program at Nichols College in Dudley.

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