The China Glass: Half Empty or Half Full?

Xi Jinping ???

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In advance of Xi Jinping’s visit to the United States this week, U.S. policymakers will be asking themselves whether the China Glass is half empty or half full. The Sino-American relationship is already complicated, and world events aren’t making it any simpler.

For example, China’s economic success has enabled the country to amass an unprecedented amount of foreign currency reserves, $1.2 trillion of which has been plowed back into U.S. Treasury bills, notes and bonds. China’s large purchases have helped to keep interest rates low in the United States, but many express concern about the American economy being so dependent upon one country. Some politicians have joked that when it comes to U.S. debt “Hu’s your daddy,” a reference to Chinese President Hu Jintao.

Trade provides another example. China’s rapid industrialization and low manufacturing costs have enabled American consumers to purchase everything that they use in their daily lives much cheaper than they could if China weren’t in the picture, thereby keeping U.S. inflation low. On the other hand, many would argue that America’s record $295.5 billion trade deficit in 2011 is one reason why unemployment in the United States remains stubbornly high.

Real life examples graphically illustrate the inherent dilemmas that China’s emergence as a global economic power has caused in the United States.

In 2010, Pacific Century Motors, a Chinese company that is controlled by Aviation Industry Corp. of China and Beijing E-town International Investment Co., an investment arm of the city of Beijing, bought Saginaw Steering Gear, a money-losing auto-parts maker from General Motors Co., for about $450 million.

With that purchase, the city of Saginaw, Michigan went from being a poster child for America’s industrial decline to a case study on the impact of Chinese investment money on U.S. communities. Before the Chinese arrived, Nexteer Automotive, as the company is now called, was on the verge of closing. If Saginaw’s biggest remaining industrial employer had shut its doors, its 3,000 or so jobs were in danger of evaporating.

Since being acquired by the Chinese, Nexteer has added more than 600 factory jobs. In addition to community leaders and Nexteer management, the hiring and new investment that Pacific Century Motors has brought has even won over workers and the labor union. “They followed through with what they said they were going to do,” says Mario Gonzales, a team leader for workers who assemble hydraulic steering pumps for GM pickups. Says Troy Newberry, president of UAW Local 699: “This place went through two different bankruptcies. With the Chinese owning us, we won’t see a third.”

Apple provides a completely different example. In recent weeks, America’s most successful company has been heavily criticized in the press for working conditions at the plants in China that manufacture its products. Last May, an explosion at a Foxconn factory in Chengdu that builds iPads killed four people and injured eighteen. The blast was caused when deadly aluminum dust from polishing iPads ignited. Foxconn plants also generated headlines in 2011 when eighteen Foxconn employees in China fell from buildings in apparent suicide attempts.

Would Americans be willing to pay more for their iPad if it were manufactured in the United States? Would they settle for products with less features? It’s obvious that consumers can’t have everything. “You can either manufacture in comfortable, worker-friendly factories, or you can reinvent the product every year, and make it better and faster and cheaper, which requires factories that seem harsh by American standards,” said a current Apple executive.

On the international front, the recent veto by China of an American-led U.N. resolution that would have pressured Syria’s President Bashar Assad to step down demonstrates just how different China’s positions can be on key issues from those espoused by the United States.

At the meetings this week with the man whom everyone assumes will be China’s next leader, American policymakers need to begin deciding whether the China glass is half empty or half full as far as U.S. interests are concerned. You can’t have it both ways.

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One Response to “The China Glass: Half Empty or Half Full?”

  1. You’ve taken a good balanced view on what is a far from simple relationship. The simplistic view taken by the media that China is bad and destroying American jobs was beginning to annoy me.

    Your Nexsteer case study is a tangible example of China investing in America. The capital is beginning to flow the other way.

    I recently also became interested in the point at which US manufacturing costs start to match China’s. The economic analysis suggests that due to China’s rising costs by 2015 the case for moving manufacturing from the US to China will be marginal for most types of goods.

    That’s another tipping point in a complex relationship.