Fareed Zakaria on China’s emerging dominance:
To get a sense of how completely China dominates low-cost manufacturing, consider Wal-Mart. Wal-Mart is America’s—and the world’s—largest corporation. Its revenues are eight times those of Microsoft, and make up 2 percent of America’s GDP. It employs 1.4 million people, more than GM, Ford, GE and IBM put together. It is legendary for its efficient—some would say ruthless—efforts to get the lowest price possible for its customers. In doing this, it has used technology, managerial innovation, but, perhaps most significantly, China. Last year Wal-Mart imported $18 billion worth of goods from China. Of Wal-Mart’s 6,000 suppliers, 5,000—80 percent—are in one country, and it isn’t the United States.
But the statistic that wins this contest, that conveys the depth and breadth of the challenge the United States faces, is surely the one about the Intel Fair. Intel sponsors a Science and Engineering Fair, which is the world’s largest precollege science competition, open to high-school students from around the world. Last year was a good one for Americans: 65,000 participated in the local fairs that are used to select finalists. In China the number was 6 million. Yes, Chinese fairs are not as good as American fairs, the standards are different, and you can’t compare apples and oranges. But still, 6 million oranges!
Brad Setser writes much more reasoned analysis of Zakaria’s piece. I need a while to digest this piece, but here’s a factoid that blew me away:
By the end of 2005, the US may import something like $260-270 billion of goods from China, and export only $45 billion of goods to China. Firms that rely on Chinese goods to fill their US supply chains have an enormous stake not only in China, but also an enormous stake in an undervalued Chinese renminbi.
Setzer summarizes: “I have said it before and I’ll say it again: it generally is not a good sign if your largest customer can only afford to buy your products if you lend him (or her) your credit card.”
Later: I read Zakaria’s cerebral but mainstream analysis of Tom Friedman’s latest book. I will note in passing my jealousy of Zakaria being able to write these long beautiful articles as part of his job . Zakaria has always been a thoughtful analyst and he’s gotten where he is today by virtue of sheer talent; on the other hand, what are the less brilliant thinkers to do in the meantime as we return to the corporate slog? And with that, I’ll close my browser down and start working very very hard on my job.