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A Must Read: China Shakes the World
by Valerie Sartor
2008-05-05 07:43:25
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China Shakes the World
James Kynge
2006, Phoenix
On 26 October 2006 James Kynge won the prestigious Financial Times & Goldman Sachs Business Book of the Year Award for his work: CHINA SHAKES THE WORLD, (Weidenfeld & Nicolson, publisher). He picked up the award and the 30,000 pound prize during the annual Gala Dinner at the Mandarin Oriental Hotel in New York. Although his book has been out for some time his message remains opportune as China continues to grow and dominate world markets.

During the 2006 dinner Mr. Kynge commented: "In a world that is interconnected to an unprecedented degree, we are all living pieces of each other's lives. We share not only an increasingly common future and present but, in as much as history configures our current realities; we are also sharing a common past. The biggest new influence - by almost any measure - on this globalised world has been China's emergence. We are finding that the trends shaping our businesses, politics, environment and strategic outlook are increasingly "Made in China". I am delighted that CHINA SHAKES THE WORLD has been selected to win this prestigious award, a move that will help to highlight the importance of China's emergence to us all."

Mr. Kynge has been a journalist covering Asia for over 20 years, for both Reuters and the Financial Times. He is an expert on Japan and China and speaks both languages fluently. Currently he works for the Pearson Group (China) and lives in Beijing with his wife and three children.

His nine-chapter book begins with an overview listing the positives and negatives surrounding China's economic rise. The outsourcing of American and European jobs, the impact of China's trading practices and the continual, overwhelming piracy of Western intellectual property have all caused the western world to feel wary of China. On the other hand, global consumer costs were down at the time of this book's publication, with low retail prices leading to low US interest rates and a consequent real estate boom. The book initially admires China's emergence and development but gradually leads toward a more cautious and pessimistic ending. Kynge concludes by speculating upon the possibility of conflict with China due to inadequate global resources and the marked rise in China's military build-up.

Mr. Kynge also mentions that China's booming economic success has been made without reference to any sort of green GDP. He notes that China's environment is in acute distress. Erosion, sandstorms, water and air pollution, water shortages and a rise in cancer and strange diseases are all connected to expanding industrialization.

The writer chronologically documents the history of the reform and opening led by Deng Xiao Ping, including some historical perspective regarding the rise of the PRC as well. He cites several rags to riches stories of various Chinese entrepreneurs, adding vivid personal accounts of China's economic history. He compares the US and Japanese industrialization in the 19th century, noting that the speed and size of China's development is far larger than the two countries and Europe's as well.

Citing the marriage of cheap labor with modern factories and technology, Kynge explains that urbanization is massive all over China and not yet matured. Because of great differences in living and cultural standards between rural and urban areas a kind of time-warp effect exists which has boosted China's economic rise due to the cost-of-living differentials. According to the author, 700 million people live on less than two dollars a day in China, thus providing a huge pool of cheap labor, all producing goods at higher speeds than English Industrial Revolution workers.

Additionally, due to an enormous population China is copying, importing and evolving using western models on a larger scale than the western world, creating infrastructure, implementing urban planning and transportation systems, as well as graduating more university students than the USA. Paradoxically, population is the country's greatest strength and greatest weakness: not only do these people provide endless cheap labor but also they are enlarging the middle class and stimulating the prospect of a large consumer market for western investment. Significantly, in order to stimulate business, create more jobs and cut costs the Chinese government subsidizes water, coal, oil and electricity. The country needs 24 million new jobs every year; without them the government faces the possibility of social unrest. For this reason Kynge said that many Chinese economists compare their country to an elephant riding a bicycle: without further growth social stability of a massive population base is at risk.

While researching his book Kynge traveled throughout Europe and the United States, studying the impact of China's increasing need and ability to import technology and jobs, including entire factories. With large Fortune 500 companies outsourcing their factories to China to increase profits for shareholders, middle level manufacturers are suffering and going bust because they cannot meet the lower price margins necessary to compete. Kynge notes in this way the rich are getting richer and the poor poorer, with the middle classes shrinking around the globe.

Moreover, China's vast legions of migrant workers are also not faring well. They have little or no benefits; independent unions don't exist in China so safety standards are low. Indeed, with the economic reforms of the last 30 years China could now be considered less Socialist than most European countries. After the 'iron rice bowl' was smashed the cost of employing works became significantly lower due to the disappearance of government funded social insurance, pensions, health care and welfare policies.

China's large, cheap, versatile workforce is also creating a devastated world environment. Everyone suffers; environmental restrictions are lax so the effects of noxious chemicals on workers and harm to nearby property are often ignored. Employees find it difficult to prosecute their bosses because courts are corrupt. The neglect, careless industrialization, overpopulation pressures and lack of experienced economic planning has led to global environmental woes that are fast becoming critical issues for everyone on the planet.

Clearly, China's ecological record is connected to economics. The country's transition contains systematic inadequacies, according to Kynge, with a clear dichotomy between capitalist and communist monetary philosophies. For example, the Chinese banking system often encourages companies to carry on producing when profit margins are low or non-existent. Chinese banks are highly liquid because citizens save up to 40% of their earning and keep it in the bank. Officials have great ability to loan out this money freely but they also feel that a domino effect would be triggered if loans were called in: other companies would go under, unemployment would rise, and company suppliers would go out of business. Consumer spending would then drop and social unrest would rise.

For these reasons, Chinese banks wait and/or do nothing (and they also neglect to inform depositors that they are in trouble) while banks operating in normal market economies would call in loans and cause enterprises to file for bankruptcy. Western companies can't keep selling below cost for years and years but Chinese banks do, encouraging oversupplies while looking around for diversification -because expansion equates with increasing scale and reducing unit costs. Exports are pushed because goods can be sold at higher prices than domestic products.

In another chapter the author also explains some of the problems foreign companies encounter in China - from forced transfers of technology as part of the agreement and consequent pirating, to costly pay outs, slow decision making processes and inadequate control over marketing and suppliers. Additionally, he notes that rampant piracy creates rapid value destruction in consumer goods and technology for all those doing business but nevertheless it runs like a virus throughout China's enterprises.

Kynge concludes that China is not only experiencing acute ecological distress but also a collapse of social trust in tandem with the economic boom. Poverty and competition for jobs and resources and government propaganda have contributed to dishonest practices, such as counterfeiting, the theft of intellectual property rights, and even the burgeoning business of forging complete identity makeovers. Tax evasion and illegal black marketeering is thriving. Divorce and adultery have risen. Ironically, the Chinese protest vehemently against the western media being cited for shabby and/or dangerous goods but they also privately feel sickened by the ubiquitous government corruption as well as the lack of honesty in business and personal relationships..

Whether the country can overcome all these problems: cultural issues, economic issues, environmental issues and trust issues, are unknown.

Kynge's book is timelier than ever because time and resources are fast running out. The entire world is now experiencing the geopolitics of scarcity, with global inflation rising, hunger in poorer countries looming, along with the nightmarish possibility of conflicts between countries for fuel and staples. How the western world can work out its differences with China regarding these problems remains a crucial question that must be amicably resolved.

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Emanuel Paparella2008-05-05 14:46:29
Thomas Jefferson had an insight by which we can safely predict how it will all end, both East and West. He said that those who sacrifice human rights and values to prosperity will eventually lose both. For the West to try to compromise on its ethical and democratic principles is to make sure that the insight applies to itself too. For indeed, the greater scarcity is not material but spiritual.

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