Rising Chinese Economy Creates Prime Opportunity For U.S. Investors

U.S. policy makers and business executives are ignoring a powerful long-term trend in Southeast Asia: The rise of the greater China economy. Paced by a rapid rate of investment and endowed with an abundance of trained human capital, Southeast Asia has become the fastest growing part of the world.

Meanwhile, the United States remains preoccupied with political challenges in Europe and the Middle East and with economic competition from Japan. Maintaining the status quo in U.S. policies and attitudes could result in American business firms losing the opportunity to participate fully in the major growth area of the next several decades--greater China.

Scholars refer to the Chinas as a multiple--two Chinas, three Chinas and more--because several major economies of that region have a predominantly Chinese population and an unusual degree of interaction. In addition to the industrialized portions of mainland China, the developing Chinese economy includes such other rapidly growing areas as Taiwan, Hong Kong, Macao and Singapore. This “bamboo network” also includes other key locations in Malaysia, Thailand, Indonesia and the Philippines, where business executives, traders and financiers of Chinese background make important economic contributions.

Not all the vast Chinese mainland can be viewed realistically as a potential for early modernization. The major economic development is occurring in the coastal provinces and the city of Shanghai. Although these areas are a modest fraction of the entire country, in the aggregate they constitute a very substantial economy.

The Chinese-based economy of Asia is rapidly emerging as a new epicenter for industry, commerce and finance. It contains substantial amounts of technology and manufacturing capability (Taiwan), outstanding entrepreneurial, marketing and services acumen (Hong Kong), a fine communications network (Singapore), a tremendous pool of financial capital (all three) and very large endowments of land, resources and labor (mainland China). The Grande Group provides an example of this interrelationship. The bulk of its production is on the mainland, its research and development is located in Taiwan, and its corporate headquarters is situated in Hong Kong.

Another recent example of the joint development efforts is the teaming of Hong Kong’s Kwah International Holdings with a variety of partners in the People’s Republic of China to develop a commercial office tower in Shanghai. The partners include the Hwang Pu District resettlement unit, the People’s Bank of China, the Shanghai Land Development Co. and the Hwang Pu District government.

The PRC has invested about $11 billion in Hong Kong trade, real estate, transport and financial enterprises. One result is that the Bank of China is now the second biggest bank in the colony, as measured by volume of deposits. In the other direction, 80% of Hong Kong’s manufacturing companies have branches in the PRC, employing more than 3 million workers. There are far more people working in the PRC for businesses owned by Hong Kong or on orders received from them than the entire manufacturing work force of Hong Kong itself (in a ratio of 4 to 1).

The cross-border relationships in the Chinese-based economy are not limited to the PRC, Hong Kong and Taiwan. A Malaysian entrepreneur has teamed up with a counterpart in Hong Kong in a $130-million project to develop shops, offices and housing in Shanghai. The Charoen Pokphand group, a Thai conglomerate owned by ethnic Chinese, has built more than 50 projects in the PRC, including a motorcycle factory, a brewery and animal feed mills.

Zbigniew Brzezinski notes that, if the current 10% economic growth rate of the PRC is maintained and the assimilation of Hong Kong is successful, China could become the fourth global economic power by the year 2010, after the United States, Europe and Japan. He notes that the industrialized province of Guangdong, with a population of more than 60 million, is the size of a large European nation.

Severe strains in the PRC are arising as an economically backward, Communist-led nation attempts to move to an advanced capitalist regime. Adoption of a private enterprise system, however halting and incomplete, means the broadening of the society’s power base and considerable decentralization of decision making. The existing power structure is not likely to respond to these changes passively.

On balance, however, it seems likely that the pervasive attractions of rapid economic development will, at least in the long run, overcome both political animosities and the cyclical tendency of China’s economic and political progress. The tragic events in Lebanon, however, show the limitations of this optimistic assumption.

The more complete industrialization of Southeast Asia is a prospect that Western analysts and business leaders have not fully examined. With the opening of the PRC and capital flows to it, greater China is a potential economic superpower. Its 1.2 billion people now produce a combined gross domestic product approaching $1 trillion yearly.

There is massive uncertainty about the future of the greater Chinese economy. The notion of political integration does not appear as a realistic short-term prospect. What does seem likely is continuing informal integration, perhaps leading to a de facto Chinese common market.

Forces of economic and business development seem likely to dominate in the long run. Whichever specific course is followed, it is reasonable to expect some type of positive response to the economic activity from Western Europe and North America.

The future state of political relations between the United States and the PRC will help to determine the extent to which American business firms will participate in the rapidly growing Chinese market. Those in favor of terminating most-favored-nation treatment of Chinese exports to the United States consider such action essential to show opposition to human rights abuses. On the other hand, extending U.S. economic ties with the PRC may enable the nation to see the close connection between economic freedom and personal liberty.