Well entrenched within the Chinese system is a strong vein of "communist crony capitalism" that has its own special set of characteristics. This results in a system that tends to be predatory and geared to quickly exploit the weaknesses of its competitors. Such systems also fail to react accordingly to market change thus squandering their resources. This feeds into China's One Road One Belt (OBOR) initiative and could seriously jeopardize its potential. The crux of this article is to underline the importance of recognizing China is a state-run economy. It is based on a business model that is geared to expand by crushing the competition. The state subsidizes those companies working within its system in a multitude of ways that helps it achieve this goal.
For years China has been a place were corruption has flourished, partly fueled because any appearance of growth has been rewarded. Also, the rules protect the politically connected. Donald Trump recognized this and rallied those Americans that have been harmed and most affected by globalization and the "China effect" to put him in office. Trump's so-called base is made up of supporters many of which have lost their jobs or seen wages stagnate over the years. This sometimes referred to as the hollowing out of America is something that has occurred across a broad swath of the country as greedy companies have exploited the concept of "free trade" by having the products they sell in America manufactured in China using cheap Chinese labor.
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On Chinese President Xi Jinping's first state visit to the USA, he made a couple of deals said to help foster relations between the two countries. One was to order 300 Boeing aircraft for $38 billion, this was tied to Boeing building the first "aircraft completion plant" in China, it was to be Boeing's first non-U.S. plant. Considering China's knack, or shall we say, history, of taking advantage of sucking production ideas from manufacturers this move was a watershed event to many industry watchers. As noted above China is now in a far better position to realize its dreams to develop this industry because part suppliers such as GE, Pratt & Whitney, and other firms are eager to supply the engines and other key components. The politics of globalization a few years ago have paved the way forward and makes China's effort to produce planes far more likely to succeed. With China's experience of building cities from scratch, why build just one factory when you can build twenty? This means we should not expect this industry to grow organically but to expect its growth to be engineered by an aggressive government with a mission.
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The third article warns that when you closely examine America's trade deficit with Mexico it becomes even more disturbing. When following the money the United States huge trade deficits you begin to understand the money eventually ends up in China. When you start thinking about all the money and jobs we shift into Mexico each year you would think by now Mexico would be rolling in cash, however, a bit of research quickly confirms that the money Mexico receives by way of trading with America quickly passes through its lands and flows to Asia. It could be argued that when all is said and done we are still transferring our wealth to the far east only by the scenic route and each year the numbers are huge. The United States ran a shocking $419 billion goods deficit with China in 2018. This is before considering how much American money flows into China through our other trading partners.
It does not take a great deal of foresight to realize that America is on the verge of giving up its role as an economic leader if it continues on its current path. Those who surrender to the idea America is too small to remain a world leader based on its smaller population numbers do not understand that quality beats quantity hands down. Whether driven by greed or suffering from being short-sighted, buyers of the many products we import each year should resist giving up their futures so that we can buy the latest fancy flat-screen television or set of patio furniture made in China for far less than one made in America.
Countries that export goods at slightly below cost in exchange for manufacturing jobs are not stupid they are predatory and we in America are their prey. Sadly, history has shown that trade agreements with low wage nations are not the great job creators we have been told. The "so-called" free trade movement is often driven by greed and the desire of mega-companies to expand their markets. This makes it very important that we generate a solid effort to understand our adversary in this economic struggle. Baked into the Chinese system is a lack of respect for intellectual property and the notion they have the right to steal and copy the products of foreign companies at a lower cost. This makes it crucial we recognize the truth behind what drives the Chinese business model and find ways to level the playing field.
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Footnote; This link is to an interesting YouTube video that delves into the Chinese form of crony capitalism and its characteristics. It features Chang-Tai Hsieh, Professor Of Economics, Chicago Booth School of Business. https://www.youtube.com/watch?v=u8UEzVfspLs