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China's new world order demands stronger U.S. response

By Robert J. Samuelson

Monday, January 24, 2011
By all appearances, Chinese President Hu Jintao's visit to Washington last week changed little in the lopsided American-Chinese relationship. What we have is a system that methodically transfers American jobs, technology and financial power to China in return for only modestChinese support for important U.S. geopolitical goals: the suppression of Iran's and North Korea's nuclear weapons programs. American officials act as though there's not much they can do to change this.
It's true that the United States and China have huge common interests in peace and prosperity. Two-waytrade (now about $500 billion annually) can provide low-cost consumer goods to Americans andfoodstuffs and advanced manufactured products to the Chinese. But China's and America's goals differ radically. The United States wants to broaden the post-World War II international order based on mutually advantageous trade. By contrast, China pursues a new global order in which its needs come first - one in which it subsidizes exports, controls essential imports (oil, food, minerals) and compelsthe transfer of advanced technology.
Naturally, the United States opposes this sort of system, but that's where we're headed. Clashing goals have trumped shared interests.
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Start with distorted trade. The New York Times recently reported that Evergreen, a maker of solar panels, is shutting its Massachusetts factory, moving production to a joint venture in China and laying off 800U.S. workers. Despite $43 million in Massachusetts state aid, Evergreen's chief executive said that China's subsidies - mainly low-interest loans from state-controlled banks - were too great to pass up.
Thus subsidized, Chinese solar panel production rose fiftyfold from 2005 to 2010, reports GTM, a market analysis company. Cheap bank loans to solar companies total about $30 billion, but it'sunclear whether they'll be repaid in full, notes GTM analyst Shyam Mehta. "It could be free money," he says. China's share of global production jumped from 9 to 48 percent. In 2010, about 95 percent of China's solar panels were exported.
With details changed, similar stories apply to many industries. The undervaluation of China's currency, the renminbi, by 15 percent or more magnifies the advantage.Jobs shift to China from factories in the United States, Europe and elsewhere.
Next, consider technology transfer. Big multinational firms want to be in China, but the cost of doing so is often the loss of important technology through required licensing agreements, mandatory joint ventures, reverse engineering or outright theft. American software companies estimate that 85 to 90 percent of theirproducts in China are pirated.
Writing in the Harvard Business Review, Thomas Hout and Pankaj Ghemawat cite China's high-speed-rail projects. Initially, foreign firms such as Germany's Siemens got most contracts; in 2009, the government began requiring foreign firms to enter into minority joint ventures with Chinese companies. Having mastered the "core technologies," Chinese companies have captured80 percent or more of the local market and compete with foreign firms for exports. The same thing is occurring in commercial aircraft. China is building a competitor to the Boeing 737 and the Airbus 320; General Electric has entered into a joint venture that will supply the avionics, the electronics that guide the aircraft.
Finally, there's finance. China's foreign exchange reserves - earnedmainly through massive export surpluses - approached $2.9 trillion at year-end 2010. These vast holdings (which increase by hundreds of billions annually) enable China to expand its influence by sprinkling low-cost loans around the world or making strategic investments in raw materials and companies. The Financial Times recently reported that China - through the China Export-Import Bank and the...
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