China versus the world economy: a global challenge

China versus the world economy: a global challenge, by The Economist.

Tensions over China’s industrial might now threaten the architecture of the global economy. The US trade representative, Robert Lighthizer, this week called China an “unprecedented” threat that cannot be tamed by existing trade rules. …

At the heart of these tensions is one simple, overwhelming fact: companies around the world face ever more intense competition from their Chinese rivals. China is not the first country to industrialise, but none has made the leap so rapidly and on such a monumental scale. Little more than a decade ago, Chinese boom towns churned out zips, socks and cigarette lighters. Today the country is at the global frontier of new technology in everything from mobile payments to driverless cars.

Even as China’s achievements inspire awe, there is growing concern that the world will be dominated by an economy that does not play fair. Businesses feel threatened. …

Undoubtedly, China has form. It kept its currency cheap for years, boosting exports; it finances its state-owned giants with cheap credit; and its cyber-spies steal secrets. Yet depictions of corporate China as just an undemocratic, state-run monster, thieving and cheating to get ahead, are crude and out of date.

Homegrown innovation is flourishing. The innovators are mainly private, not the many heads of a single creature called China Inc. To separate hype from reality, think of Chinese competi­tion as having three dimensions: illegal, intense and unfair. Each needs a different response.

First, consider illegality. The best example is the blatant theft of intellectual property that makes for the most sensational headlines, such as the charges laid in 2014 against five Chinese military officers for hacking into US nuclear, solar and metals companies. The good news is such crimes are declining. …

The second dimension — intense but legal competition — is far more important. Chinese firms have proved they can make good products for less. …

Last, and hardest to deal with, is unfair competition: sharp practice that breaks no global rules. The government demands that firms give away technology as the cost of admission to China’s vast market. Foreign firms have been targeted in the biggest of China’s anti-monopoly cases. The government restricts access to lucrative sectors while financing assaults on those same industries abroad. Such behaviour is dangerous precisely because today’s rules offer no redress.

hat-tip Stephen Neil