The Chinese Century: The Rising Chinese Economy and Its Impact on the Global Economy, the Balance of Power, and Your Job Hardcover – Oct 13 2004
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"Essential reading for anyone doing or planning to do business in China." - Business Destinations --This text refers to the Paperback edition.
From the Back Cover
Within 20 years -- possibly far sooner -- China will have the world’s largest economy. That will powerfully impact you: your job, your company, your economic future, and your country. In The Chinese Century, Oded Shenkar shows how China is restoring its imperial glory by infusing modern technology and market economics into a non-democratic system controlled by the Communist party and bureaucracy.Shenkar shows why China’s accelerating growth differs radically from predecessors such as Japan, India, and Mexico -- and how it will lead to a radical restructuring of the global business system. Discover why the U.S. is most vulnerable to China’s ascent... how China’s disregard for intellectual property creates sustainable competitive advantage... and how China’s growth impacts every global business and consumer. Above all, Shenkar shows what you must do to survive and prosper in “the Chinese Century.” · Cheap labor + millions of high-skilled professionals · How China will sustain dominance in low-tech industries as it enters high-tech realms · Building tomorrow’s Toyotas and Sonys... faster and cheaper · Chinese multinationals: learning from joint ventures, preparing to lead · Leveraging Hong Kong, Taiwan, Singapore, and the “Chinese diaspora” · Bringing together the world’s most powerful pool of human resources · $2 Rolexes, and beyond · Piracy, counterfeiting, bootlegging, and stolen intellectual property · From economics to geopolitics: counterbalancing America · Previewing China’s increasingly assertive foreign policy See all Product Description
Inside This Book(Learn More)
Economists and editorial writers often paint China's ascent as one more case of an emerging economy on its way up, preceded by Japan and the Asian "tigers" (South Korea, Singapore, Taiwan, and Hong Kong), and soon to be joined by India. Read the first page
Front Cover | Copyright | Table of Contents | Excerpt | Index | Back Cover
Most Helpful Customer Reviews on Amazon.com (beta)
Will China ultimately become the next Japan, hobbled by internal weaknesses? Not likely, argues Oded Shenkar, author of Wharton School Publishing's latest book, The Chinese Century. Rather, China will leverage its growing advantages to redraw long-standing economic, political, and security arrangements-potentially to the West's great discomfiture.
China's size gives it crucial advantages over other emerging economies, writes Shenkar. Its enormous worker supply lets it keep moving up the technology scale without raising costs. Its huge markets allow it to drive hard bargains on technology transfer. It benefits from regional leadership, and a vibrant and entrepreneurial overseas community.
Local firms like TCL, Haier, and Lenovo-which just purchased IBM's PC business-are beginning to build solid global brands. Meanwhile, America's shift to Wal-Mart style discount retailing has been a perfect match for China's low cost structure and massive production capacity. Even China's physical and regulatory infrastructures are progressing, though China still hasn't cracked down on the massive intellectual property theft that's often substituted for innovation.
In short, when it comes to long-term global impact, Shenkar believes the best analogy isn't Japan (or India or Singapore): it's the U.S.'s emergence as a world economic power a century ago.
There's little encouragement here for American manufacturers. Some will survive by exploring product lines requiring specialized capabilities, or those where labor constitutes a small percentage of cost, or by moving upmarket. But the Chinese are automating and moving upmarket, too. Services may remain an option. In certain product categories, so does customization. But many companies will find themselves outsourcing everything-or simply exiting markets.
What are the broader economic implications of China's ascendancy? Shenkar outlines three conventional scenarios, finding flaws in each. He seems especially skeptical of the hopeful "soft landing" scenario, which posits a gradual decline in trade imbalances as China's costs rise and U.S. productivity accelerates.
While China is now the U.S.'s fastest growing export market, shrinking the trade deficit will require exports to keep rising 25% annually while import growth plummets below 10%. A soft landing assumes China will gradually change exchange rates, open markets, eliminate subsidies, and make a genuine effort to "buy American"-doubtful propositions, in Shenkar's view. It also assumes the U.S. will quickly climb to higher-end production, but "the US will not be the only nation trying to move up the ladder as a way of escaping vicious competition at the bottom... life at the top will get pretty crowded."
The Chinese Century is sobering, especially if you believe that economic power drives geopolitical and military power, too. But if you're determined to base your decisions on reality, it's a must-read.
In the last section of chapter 6 Shenkar notices that there are actually companies that do export to China but keeps silent on the reasons for their success. The book is therefore not useful on this account as well. The tables and graphics are not up to date and copied from other publications. They often end in 2001 or even 2000. A much more detailed and up to date overview on China presents the OECD's "China in the World Economy".
As a side note, the book (as well as others) is as much about the US as it is about China. China is seen only in negative colours. For instance, over and over the negative trade balance between the US and China is discussed while other countries' trade balances with China are often quite balanced. What is not mentioned in the book is that most of the developing countries including China and many developed countries are weary as well, about the US dominating their lives and economies with McDonalds, Nike, Microsoft and Starbucks, with Hollywood and US accounting firms. From their perspective, the wave of exports to the US doesn't seem to be such as bad thing but only a fair counter weight.
With a brief introduction and prospects of a glorious future, the book gives us a broad historical perspective of the Chinese history and culture. The rich heritage and Confucian principles have withstood the test of time. The country was responsible for important inventions like paper and gunpowder. Unfortunately the powder was not dry when needed against foreign invasions and many inventions remained on paper. This humiliation and the setback during the first few decades of the communist regime set the Middle Kingdom's clock back in terms of economic progress. However the economic reforms launched during the last quarter of the twentieth century is a massive effort to restore the lost glory of the great nation.
The book points out several dichotomies about China. It is a communist country but the share of the government in the economy is very low. It attracts large foreign investments but does not protect intellectual property rights. Highly competitive markets in some segments and huge subsidies in others. High savings rates but weak capital allocations. These aspects coupled with the tight bureaucratic communist party rule over the executive, legislature and judiciary makes it a highly complex place to understand and do business in for outsiders. However for most multinational companies, the Chinese market is too big to be ignored and it is worth understanding and putting up with some problems for a short while.
If piracy is about stealing ideas and using them in ones own products, fake and counterfeit are about imitating branded products and selling them under the same brand name. China is a global leader in this area too. It is no surprise that with a corrupt bureaucracy such practices thrive incurring revenue losses conservatively estimated in excess over $ 20 billion annually to global firms. This appears to be the most challenging area to be tackled. While manufacturers of spurious items make hefty profit margins with no costs on research, the rightful owners of the brands are saddled with warranty costs and loss of reputation for bad products in the market. The book has devoted a chapter to discuss this menace.
Several Industries ranging from toys, electronics and home appliances are discussed extremely well in terms of how China is emerging as a global leader in such items and also how fast the country is moving up the value chain.
However there are major risks associated with China that can spillover and might threaten a regional or global economic meltdown. The Chinese currency is pegged to the dollar and undervalued. The excessive dependence on external trade with one major trading partner adds to the risk. The country is very weak in services especially financial services and this is further amplified by huge bad loans sitting on the books of Chinese banks. The speed of progress and transition of the economic landscape needs extreme care and dexterity under such conditions.
The book's analysis of how the China factor impacts the American or Mexican economies can be extended to many other countries using the same logic and framework.
A must read for managers, economists, MBA students and all those who are interested in the understanding the great economic engine of the century.
Shenkar points out how many multinational industries and firms, especially US-based ones, have been caught unprepared, failing to realize the threat to their current business model or the sudden acceleration of structural shifts that in the past took decades to consummate. The author doesn't hold severe judgment against the US policymakers, but he focuses quite a bit on the lax controls on intellectual property rights that make it risky for outside companies to do business there, even while China negotiates (and apparently steals, per Shenkar) technology knowledge from the U.S. and elsewhere. It is this blind spot where he puts the US to task, and were it not for the constant turmoil in the Middle East, this would be more likely a front page topic. As it stands, the expedient Chinese economic advances are only starting to send shockwaves stateside.
As Fishman makes clear in his book as well, China is already the dominant manufacturer and exporter in labor-intensive industries thanks to its abundant and inexpensive supply of labor, and it's moving quickly to establish dominance in technology-driven industries. Shenkar lists some startling statistics - China currently builds half of the world's microwave ovens, one-third of the television sets and air conditioners, a quarter of the washers and one-fifth of the refrigerators. These products represent their fastest-growing exports, but the buck doesn't stop with the manufacturing sector. Although China doesn't have a history of supporting entrepreneurial activities or a strong service sector, it's getting heavily involved in a broad range of industries, which allows them a broad net for development given the size of their labor force. The author also accurately points out that China is not a standalone in its development and that other economies are also increasing in dominance and integrating with China's juggernaut approach.
The book's real eye-opener is not so much the degree of piracy occurring in China but the fact that as much as one-third of China's GDP comes from piracy and counterfeiting, including more than 90 percent of the country's software and 95 percent of its video games. The reason pirated products are so wildly popular is that customers love their value proposition. After all, it comes down to a basic economic tenet - products are not worth what the manufacturers say they are worth but what customers are willing to pay for them. Shenkar says that five of six of Yamaha motorcycles in China are indeed fake. Yamaha's parts suppliers apparently sell real Yamaha parts to fake-Yamaha assemblers. No stone appears unturned, as the same counterfeiting goes on for products as diverse as razor blades, cell phones, drugs, chewing gum, and shampoo. Most intriguingly, electronic chips are reverse-engineered and modified to allow third parties to write add-ons, creating fake chip value chains. Fake car parts are unwittingly built into real cars which ironically exposes the real manufacturers to liability. In some cases, the craftsmanship behind the fakes is so good that even the manufacturers can't tell the difference. Outgrowing the usefulness of pirated products within their own boundaries, China, as Shenkar accurately assesses, sees the new frontier for piracy is export.
Even with all the foreboding information, Shenkar is insightful enough to see China's emergence as a great opportunity and offers some strategies and tactics for companies to be successful in this new economy. For example, he asserts that American companies use copy-proof design methods in the creation of their projects. He thinks this is long overdue as multinational companies need to come to terms with the fact that the value (or at least life span) of intellectual property may be less in the future than it has been in the past. Once the unique circumstances of each product and industry are clearly delineated, Shenkar says companies need to seal all the exits by spending more on litigators who can make it painful for pirates to fake products and thus encourage the Chinese companies to steal their ideas elsewhere. Multinationals can also concurrently redesign business processes to make it more difficult to steal. With a certain amount of boldness, Shenkar recommends not doing China joint-ventures, which function as a springboard for stolen ideas, technology, and products. Instead, he recommends focusing on products with shorter life cycles which would leave pirates stuck with warehouses full of outdated products. Price slashing is yet another way to minimize Chinese leverage and make piracy less profitable.
The beneficiary of all this concentrated activity may be the US consumer since it looks like China's piracy epidemic may prove to be the great profit-margin equalizer. Shenkar's book is invaluable in showing how to refocus strategies toward the Chinese economic juggernaut and leverage what they are already doing so well. He convincingly shows how misguided it is for the U.S. government to pressure China to let the value of its currency float upward. Bottom line, a significant increase in the value of the yuan still does not offset the price advantage of China's labor-intensive products. His recommendation to make our own value proposition unique and non-duplicative is the most credible strategy I have heard on the topic. This is strongly recommended reading.
He is clear about the parallel: "China's rise has more in common with the rise of the United States a century earlier than with the progress of its modern-day predecessors and followers." (Read: Japan and the Asian "tigers": South Korea, Singapore, Taiwan, and Hong Kong.) (p. 1) He adds, "If current trends continue, China will surpass the US to become the world's largest economy (in purchasing-power parity terms) in two decades--possibly sooner." (p. 161)
However, as for China dominating the world in the 21st century the way the US has in the 20th--well, I think we can say the crystal ball remains cloudy, maybe even downright muddy. Consider that prior to the assent of Deng Xiaoping as the Chinese leader, China was floundering under the weight of a Soviet-style economy, and had gone through the disastrous "Great Leap Forward" and the horrific "Cultural Revolution." When Deng Xiaoping goes the way of all leaders, what makes anyone think that his replacement will be any better than a host of Soviet leaders or equal even to Mao Zedong, whose political and military genius did not preclude his having a disastrous effect on China similar to that of Stalin on Russia?
Deng had the genius to free the Chinese economy from the shackles of communism in his famous "one country, two systems" vision. Whether such a hybrid vision can long endure is a very good question, and whether Deng's successors will continue his policies is also problematic. My guess is they will be so focused on gaining and maintaining power that they will allow the country to regress economically. Furthermore, should China somehow throw off the communist mantle entirely, who is to say it will not--as Russia has done--revert to a corrupt, bandit sort of economy?
What this book is mainly about is the way China does business today and how that affects the global marketplace, and in particular what it is doing to the US economy. Some interesting points:
"...between 10 and 30 percent of China's GDP comes from piracy and counterfeiting." (p.86) The question is, how does the rest of the world meet this challenge?
"A key reason behind the remarkably fast penetration of Chinese products into the US market is a retail landscape increasingly dominated by large retailers." (p. 149) The largest of these is Wal-Mart "which accounts for more than 10 percent of the US imports from China." (p. 150) Shenkar notes that the Chinese "need...large retailers to take their growing production capacity... Thus, the fates of Wal-Mart and the Chinese industry will remain closely intertwined for years to come." (p. 151)
Right now China leads the world in the manufacturing of toys. It is now or soon will be the number one manufacturer of furniture, and as Shenkar points out, not just low-end furniture, but top-end as well. Shenkar speculates, "Given the general overcapacity in industry and the technological edge of the newer China plants, it is difficult to see how automotive manufacturing in the developed markets such as the United States and Europe will not be affected." (p. 114) Furthermore, most TVs made today are made in China, and that includes plasma and high definition models. The reason for this real "great leap forward" in manufacturing is first the leadership of Deng Xiaoping and incentives from the Chinese government, and second the vast amount of cheap Chinese labor.
But Japan once made the cheapest goods in the world, and then made (as China is now doing) better and better products, and still sold them for less. However, today, the Japanese economy is stagnate and the reasons are mostly cultural. From the evidence that Shenkar presents, I think it is easy to guess that China's economy will eventually stagnate as well, and also for cultural and political reasons.
There is much to chew on and think about in this book, but what I found myself wondering about was the future of the US as a service economy. Obviously, even if China relinquishes some of its dominance in manufacturing, it won't be the US with its expensive labor that will take up the slack. What the US is doing, as Shenkar notes, is becoming more and more dependent on services, especially in technology and education, to maintain its economic supremacy. He warns that "we have no precedent of a major economy that is predominantly dependent on services," noting that successful service economies tend to be small, e.g., "Luxembourg, Hong Kong, and Hawaii." (p. 164)
What I thought about when reading this is that the US can work as a service economy if it continues to (1) have the best universities in the world; (2) be a great tourist destination (with relatively clean air and water); and (3) be a great place to live (freedom and security can make for some very lofty real estate values!).
One thing that Shenkar does not address (although he mentions it in passing) is the horrendous pollution problem that the Chinese already face. Their great cities are looking more and more like London during the Industrial Revolution. What will be the health cost to China in the long run? And will the Chinese people continue to be so productive or will they leave the polluted cities, or worse, revolt?
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