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Claims About China’s Prominence Are Overblown

Unlike many observers who believe China is on its way to becoming the next world hegemon, George F Colony, CEO of Forrester Research Inc, the premier research company, says many claims about the emergence of this country are wildly off.  For him, all the news reports of purported economic threat to US or the west …

Unlike many observers who believe China is on its way to becoming the next world hegemon, George F Colony, CEO of Forrester Research Inc, the premier research company, says many claims about the emergence of this country are wildly off.  For him, all the news reports of purported economic threat to US or the west from the east are nothing but half-baked gibberish parleys. 

Writing for his blog, Counter Intuitive, George Colony, strongly downplays the debates of a Chinese threat to the western economies as mere fad and hearsay. Reacting to a report published in NY Times, he says that much of the China hysteria feels like the Japan fad from the late 1980s, where press and the experts babbled about the Japan threat, complete with how Japan would beat the West in quality, cost, business thinking, discipline, worker productivity, creativity, cars and chips. So beware purported threats from the East without full knowledge and common sense analysis of all of the factors at work should be least bothering, he says.  

Colony is of the opinion that China being a communist nation cannot produce a vibrant and free economy. “A vibrant, adjusting, fast-growing, free economy cannot exist in a society that is governed by a totalitarian regime,” he says. Colony believes that Government-controlled economies ultimately breed bad business decisions, poor application of capital, and the miss-match of people to leadership positions. “Capitalism grows best in the rich soil of democracy — something the China cheerleaders at GM and Goldman Sachs have conveniently forgotten,” he quips.

According to a Forrester 2006 survey, Chinese consumers have drastically lower trust in TV, newspapers, and the Web – considered essential parameters of a free economy – than consumers in the U.S., Japan, South Korea, Australia, and India. “Though China boasts of its huge human resource (about 1.2 billion), it’s only 300 million people in the eastern coastal metropolis’ that are driving the phenomenal growth in the country, while about 500 million peasants in the west are untouched by the newfound prosperity,” Colony reiterates.

However, a recent survey by Gallup, a data-driven global information provider, indicated that four out of 10 Americans saw China as the world economic leader, while only 33 percent believed that the US was still going strong. Interestingly, a similar poll conducted by the same agency in 2000, found that 65 percent of Americans said US would remain an economic powerhouse for the next 20 years. The Gallup poll attains significance in the current backdrop of economic uncertainty in the US, dazed by turmoil in financial markets, a feeble dollar and continuing worries over the fallout from the sub prime mortgage crisis. 

Though the Chinese National Bureau of Statistics in its recent release put its GDP growth for 2007 at 11.4 percent, World Bank figures position the Chinese economy at the fourth rank – behind Japan and Germany – with US still topping the charts with a GDP of $13.2 trillion in 2006. 

However, China seems to be faring well in the manufacturing sector with a remarkable growth. In 2006, while America‘s manufacturing sector produced about $2.7 trillion in goods, China‘s manufacturing sector produced about 8.74 trillion Yuan in goods, or about $1.124 trillion. But economic experts point out that the real value of China‘s output is more than twice the exchange-rate value, as indicated by the price studies done by the World Bank for the year 2005.  

In an exhaustive study published last year, the World Bank’s International Comparison Program confirmed that this pricing deflator is valid across the entire Chinese economy. According to a Heritage Foundation report published last December, by applying the PPP factor of 2.38, China‘s $1.124 trillion worth of manufacturing output would be worth $2.717 trillion on the U.S. market-slightly higher than America‘s $2.7 trillion in manufacturing output.

Besides, what the figures have to say, Colony also believes that China is emerging as a world power. However, he is doubtful if the communist nation can sustain the growth for a longer time, which he feels is highly uncertain. “I am skeptical that the country can sustain its present trajectory without near term trips and falls, and that it’ll grow to play at the same level as the U.S. and the EU unless it embraces major structural changes – primarily political,” he says.

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