China’s economic show of force

Scott Tong Jan 19, 2011

China’s economic show of force

Scott Tong Jan 19, 2011


Kai Ryssdal: Very little is left to chance in state visits like the one Hu Jintao’s making to the United States this week. Who stands where, who says what, what gets signed are all mapped out in weeks in advance.

So the news that President Hu was bringing with him orders for $45 billion worth of stuff ‘Made in the USA’ wasn’t entirely unexpected. And right about now I can hear you thinking, standard high-profile economic visit, right? A bunch of trophy deals and that’s it.

Far from it, as Marketplace’s Scott Tong reports.

Scott Tong: What a difference 30 years makes. A generation ago, the China play was Western companies going there, for cheap labor.

Mike Morris worked for Pepsi in the early days, when Chinese workers were still figuring out the capitalism thing.

Mike Morris: The state didn’t actually pay you very much, pretended to pay you. And in return, labor pretended to work. That was the rules of engagement that we entered.

Today’s new rule: China is exporting capital. In fact, more investment may be coming out of China now than going in.

Dan Rosen: It’s already happening. The inflection is upon us.

Dan Rosen at the Rhodium Group consults to American multinationals.

Rosen: We’re starting to see extremely large volumes of Chinese direct investment flowing out into the world.

Large as in $4 billion flowing to the U.S. Translation: 10,000 jobs.

The Chinese president this week is highlighting Chinese industrial firms buying and building factories here. And along the way, learning how Americans innovate.

Rosen: What the Chinese are after is what they can’t do. The engineering, designing new products that will break away from the pack, like the iPod and the iPad have.

An early pioneer is appliance maker Haier. Ten years ago, it opened a plant in South Carolina; now it rules the U.S. compact fridge market.

Dali Yang is with the University of Chicago.

Dali Yang: Haier has done a great job. It has stayed away from the limelight and really made its presence felt in Wal-Mart and other stores.

Not without growing pains, though. Clayton Dube at the University of Southern California recalls an early PR bungle over flags outside the factory. Haier had to lower its Chinese flag a bit.

Clayton Dube: So that the American flag was above the Chinese flag and above the South Carolinian flag. There are all sorts of small gestures you have to do in a community.

That might come harder to Chinese telecom titan Huawei. It’s the world’s number two maker of networking hardware, and its fastest growing market: North America. But to some, it’s a security threat. Again, Dan Rosen:

Rosen: Telecommunications is a sensitive sector in a way that Haier’s dormroom beer refrigerators are not so sensitive.

National security concerns helped kill Huawei deals to supply AT&T and Sprint. The $30 billion Chinese company is privately owned; we don’t know much about it.

Rosen: This lack of transparency as to what the ultimate relationship is between the state and the corporate sector in China is starting to haunt Huawei.

Also coming to the U.S. market, Chinese video game companies. The U.S. developer of this game, Mochi Media, was acquired last year by a Chinese company. In fact, several are now landing in the U.S. to go public, learn the U.S. market, and to hire, says USC’s Clayton Dube.

Dube: These firms are eager to hire some of the hundred thousand American-trained Chinese nationals, who may want to remain in the United States.

In the world economy, that’s what America is perceived to do well: develop talent, and invent stuff. And it’s the world’s biggest consumer market. That should draw tens of billions of more Chinese dollars this decade. It’s coming, ready or not.

In Washington, I’m Scott Tong for Marketplace.

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