By Caroline Li
Northwest Asian Weekly
Forget the socks and t-shirts. In today’s global economy, the most talked about country in the world has an opportunity to shed its reputation from being the mass maker of cheap products to a model for the U.S., according to Daniel Rosen, an economic adviser specializing in China’s commercial development.
Rosen writes and speaks extensively on U.S.-China economic relations and is the principal at Rhodium Group, a firm specializing in macroeconomic developments related to Greater China and India.
Rosen spoke at a luncheon held at the Rainer Club on Nov. 21. The luncheon was organized by the World Affairs Council, a nonprofit and nonpartisan organization that promotes greater understanding of global affairs in the Pacific Northwest.
The luncheon, titled “China’s Economic Rebalancing, Energy Problems, and Trade Frictions — All the Same Thing!” addressed popular questions like how energy prices will affect China’s growth and industry in the coming years. Will China’s economic evolution be good for the U.S. economy, or should it be something to be afraid of? What are some of China’s surprising growth strategies? What will some of its new markets be in the coming years?
Rosen focused his talk on China’s new plan to balance its economy by reducing its energy consumption. This includes regulating the number of steel factories in the country and shifting its exports from manufacturing to light industry services. “China is growing fast but is less sustainable. The Chinese government has recognized that there is a need for a new model of growth,” said Rosen.
In the last four years, China went from the world’s largest importer of steel to the world’s largest exporter of steel. The country has also taken the lead in U.S. debt, surpassing Japan. “The need for change isn’t just pressing, it’s quite radical,” said Rosen.
China’s top five industries, with steel being the largest, account for 75 percent of the energy use in the country.
However, this economic model came with complications. The overwhelming number of steel factories wasn’t something the central government had envisioned, and the country didn’t have an energy policy plan in place to evaluate or control those provinces that decided to turn themselves into steel economies. “It just got more and more out of whack,” said Rosen.
“I think China’s energy issue is very interesting. It reminds me of the oil issue in America,” said Chang-Chuan Cheng, a Master of Business Administration student at Seattle Pacific University, who attended the luncheon. Cheng is curious to see the effects of China’s reliance on energy, especially if it will no longer come from within.
The common fear is that cutting back on factories means cutting jobs. About 14 million people are employed by five of the top industries in China alone. But like many, Rosen argues that if China can shift from mass manufacturing and concentrate on building its service sector, jobs will be created and the economic rebalance will be in the right direction.
Quantity has always been one of China’s comparative advantages but as the country moves up the food chain, it’ll have to adapt and learn to battle the challenges that developed countries had to face early on in the global economy.
“China needs to beef up its servicing sector in order to stay competitive,” said Rosen, especially when emerging economies such as India and the Southeast Asian countries are able to manufacture the cheap products that China was once known for producing.
Today, China is in a position to move away from its reliance on manufacturing and increase the value of its products through branding, a strategy that is more associated with the United States and is almost nonexistent in China.
When the crowd was asked to name brands that came from China, only a few hands were raised, partly because the Chinese brands have not made much of an impact on the average American and there are only a handful that actually exist. “If China can achieve domestic brand awareness, higher end exports will lead to a better trade balance,” said Rosen.
For Skip Masonsmith, who attended the luncheon and works in the banking industry, China’s large impact on the world economy through its handling of internal investments is one of his biggest concerns. Many anticipate how it will all play out.
“Figuring out how China will balance its economy is the first order of crisis that they will find themselves in,” said Rosen.
The Chinese government has already started taking action to rebalance their economy and to identify what they’ll need to do to stay competitive in the future. Likewise, for those who fear that China’s growth will dampen the U.S. economy, Rosen said the economy also starts at home.
“Things done here will boost our export potential,” he said, specifically pointing out the future of green technologies, where the U.S. has a high competitive advantage.
In China, the vision is becoming clearer. “They won’t wait until the dust blows over, they know they need change fast,” said Rosen. ♦
Caroline Li can be reached at email@example.com.