By Guo Shuqing
Chinese and US economies bring benefits to each other despite
the challenges they face.
To begin with, the two economies have become the "double
engines" driving the world economy.
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It is widely believed that the United States is the biggest
consumer country and China the largest investment maker.
As a matter of fact, China boasts super-big consumption, too.
The country, for example, ranks first among the world's economies
in turning out and consuming cereals, meats, cotton, aquatic
products and fruits.
In addition, housing construction and sales in China are
unrivalled by any other country in the world.
The mileage of newly constructed highways is extended
significantly each year and more and more automobiles are owned by
Chinese families.
Just as the United States' colossal consumer demand powers the
growth of manufacturing sectors in many other countries, the
Chinese economy's demand for raw materials, energy and investment
is making its strength felt in Asia, Oceania, Europe, South America
and Africa. Japan and European countries particularly benefit from
this, because it allows them to export large quantities of
machinery and equipment to China.
There are many active players on the global economic landscape,
such as Japan, the EU, India and Brazil. But China and the United
States are the two most eye-catching ones. This is because China
has not only become one of the world's most important manufacturing
centers but also developed into one of its major capital suppliers.
The United States, meanwhile, is the largest net importer of
industrial products and the biggest recipient of overseas
capital.
There is more to it than that. China and the United States are
the two economic entities enjoying the most promising
prospects.
This is because China is the world's most populous country and
has big market potential.
Worth special mention here is the fledgling service sector,
which is virtually an untapped gold mine.
Among all developing countries, China's labor force is of higher
quality against the background that the country has the largest
labor contingent in the world, which is tantamount to the
workforces of the United States, Japan and Europe combined.
The United States is the global centre of technological
innovation and know-how, and of course the powerful locomotive of
the world economy.
However, we should not forget that China's central and western
regions are still trailing far behind the eastern and southern
coastal areas economically. It would take 20 years for these areas
to catch up, some experts predict.
At the same time, consumption demand remains weak, which is
structural by nature. This actually mirrors the insufficient supply
of services, particularly in the public welfare sector.
Very close bilateral economic ties are expected to be forged
between China and the United States, as dictated by the two
economies' comparative advantages.
Theoretically, the United States could turn away from China and
import consumer goods from other nations. If it did, however,
neither the United States nor China would be able to reap the
optimum gains. Similarly, China could channel capital into European
countries instead of the United States, but this would throw the
European monetary market off balance and trigger inflation. All
this would do no good to the world economy ultimately.
The Chinese and US economies are the two most open ones among
their world peers, thanks to particular historical and cultural
factors. In terms of market access and sector access, China is even
more open than the United States.
Moreover, China and the United States are representative of the
two most energetic cultures and languages.
The influence of culture and language on economic progress is by
no means less than that of science and technology, in this author's
opinion.
The faster a nation's economy grows, the more dependent on
culture it becomes.
Also, the part played by language should not be ignored.
Exchanges could never be conducted, nor transactions ever struck,
without language. And the Chinese and English languages are the
most extensively used in the world.
However, along with the pleasant aspects, the Chinese and US
economies face challenges and problems as well.
First and foremost, we have trade disputes.
The US side holds that the under-valued renminbi exchange rate
causes a trade imbalance that favors China at the United States'
expense.
Besides, the US side claims, intellectual property rights
encroachment and piracy pose a stumbling block to the healthy
development of China-US economic relations.
From the Chinese point of view, however, the favorable trade
balance China enjoys is largely attributed to the actions in China
of overseas corporate giants including US players, many of whose
products are shipped to the United States.
The Chinese side believes the exchange rate is by no means
omnipotent in settling trade problems, though it can indeed play a
role.
Thirty years ago, for example, Japan and Germany (then West
Germany) appreciated their currencies 200 percent in an attempt to
redress their trade imbalance with the United States. But the two
countries today still enjoy favorable balances in their trade with
the United States.
Currently, much pressure is being exercised for revaluation of
the renminbi. But this is not the effective way to have the trade
problems settled.
As mentioned previously, China's foreign trade is, to a certain
extent, a sort of re-export model, exporting products turned out by
foreign corporations' China operations. Appreciation of the
renminbi will enable export-orientated Chinese enterprises to buy
more raw materials, cancelling out the negative effects on the
exported goods, which are rendered more expensive by the renminbi
revaluation and, therefore, less competitive on the world
market.
So, the foreign exchange leverage cannot do much about altering
the trade imbalance between China and the United States.
As a matter of fact, development of bilateral trade brings
benefits to both China and the United States in the long run. China
will not profit at the United States' expense, while the latter
will not suffer mammoth losses.
There are other problems, such as disparity in terms of
investment.
US firms have so far invested a total of US$60 billion in China
while Chinese investment in the United States remains
insignificant, owing to different policies adopted by the two
countries on market access and foreign direct investment.
In addition, some Americans are oversensitive to Chinese
companies' annexation of US firms and to Chinese banks' buying
government bonds in the United States. Also, there is a tendency to
politicize economic matters, especially on the part of the United
States, though the Chinese tended to do so a few decades ago in the
command-economy era.
The way out lies in both parties' facing these problems squarely
and finding out the most effective solution that benefits both,
with reality as the departure point.
The author is chairman of the China Construction
Bank.
(China Daily August 25, 2006)
