China: Let’s Face Reality
October 1 2003 by William J. Holstein
There’s been a whiff of pathos in the appeals of Treasury Secretary John Snow that China allow its currency to float higher in value. Acting at the behest of some U.S. manufacturers, Snow seems to believe that tinkering with the renminbi will save American jobs.
Gentlemen, it’s time to wake up and smell the ginseng. China hasn’t even truly begun to exercise its manufacturing clout. This is a phenomenon I’ve been chronicling for nearly a quarter century and a trend that I saw anew on a visit to China last summer.
Beijing has exploded over the years and resembles Los Angeles with all its traffic-clogged freeways. The city is virtually unrecognizable from when I lived there in 1981-82. Much the same has happened in Shanghai, in the Guangzhou-Shenzhen region and to some extent in Tianjin.
But once you get out of these areas, much of the face of China remains unchanged. Last summer, I was driven on the expressway that runs from Beijing to Tianjin. The scenes of peasants tending to their ducks were from time immemorial.
As we drove, seemingly in the middle of nowhere, my hosts from Tianjin insisted that we stop in an area called Langfang to see a new economic development project. I was skeptical.
But it turned out that this is an emerging center of China’s furniture industry. Entire warehouses the size of New York City blocks were filled with the kind of furniture you’d find in millions of American homes. It was all for sale-and it cost less than half what it would take to make the same furniture in North Carolina. Although Beijing and Shanghai have become expensive, as the Chinese open up new production zones throughout their vast hinterland, many more light-manufactured goods are going to pour out of China. By some estimates, as much as 40 percent of the world’s manufactured goods could be Made-in-China within a few years. China’s trade surplus with the U.S. has passed the $100 billion mark, and is now larger than Japan’s. It clearly is going to keep growing.
So tinkering with the renminbi is like asking a freight train rolling down the tracks to slow down from 60 miles per hour to 55. Either way, you’re going to get flattened.
Anyone who wants to survive in many sectors of U.S. manufacturing has to figure out how to play the emergence of China and not wait for divine governmental intervention. Commodity-like components will have to be made in China or someplace like it, while higher value-added elements are kept on U.S. soil.
The other twist on Mr. Snow’s visit is that the Chinese now have the resources-about $350 billion in foreign exchange reserves-to manage their currency’s value as they see fit. They didn’t give any “concessions” because they don’t perceive the need to. We in the West are just beginning to understand the implications of China’s historic opening to the world.