Far from overtaking the United States as the world’s greatest economy, China is a country beset by supply chain problems and corruption and is a threat only in the unsafe products it sells Americans. It’s also an opportunity for American businesses, including Arkansas-based ones.
That was the message of Jeremy Haft in an address at the Clinton School of Public Service Thursday (Feb. 11). Haft is the author of “Unmade in China: The Hidden Truth about China’s Economic Miracle” and an entrepreneur who has started and built companies in China.
Haft said concerns about China’s economic might – and that “the sun is setting on American greatness” – are overblown.
“I’m here to tell you that the view on the ground in the factories and farms is radically different from what we hear from our economists and politicians and media,” he said.
Haft said when he began his first firm in China in 1998, he investigated the country’s supply chain to determine how products are made in that country. Holding up a bottle of water, he said it would be manufactured in America with inputs from four or five firms where risk is minimized through a system that has had centuries of corporate law and individual freedom.
China, however, limits the free flow of capital and people, so that bottle would involve 15-20 firms working in a system where companies lack basic governance skills, and the regulatory system is “broken and fragmented.” Each step along the way adds risk rather than minimizing it, he said, so that “Every node in China is a concentric circle of danger.”
Haft said American policymakers and political candidates are focusing on the wrong threats. The rhetoric is about the currency devaluation and trade wars. In fact, he said, there is no correlation between the value of the yuan and job growth.
The real danger, he said, is in substandard, risky products that are threats to Americans’ health and safety. He said China has had thousands of safety scandals in recent years – the result typically being that one person is scapegoated rather than the entire system reformed. For example, 300,000 babies had renal failure because an industrial chemical contaminated baby powder.
That system is a threat to the United States because products, including four billion pounds of food annually, are imported here. When California contracted with a Chinese company to make repairs to the San Francisco Bay Bridge, it found that welds were cracked and the quality random.
But China also represents an opportunity, because Chinese consumers know American products are of higher quality than those produced at home. Exports from Arkansas to China have more than tripled during the past 10 years. Moreover, 92% of Congressional districts have at least doubled their exports to China over the past 10 years, mostly from small enterprises. American companies are selling products to the Chinese at a premium because Chinese consumers prefer the imports’ higher quality. When the baby powder scandal occurred in 2008, dairy exports from the United States to China quadrupled.
Agriculture in particular represents an opportunity. China’s entire arable land area would fit inside the state of Texas, 90% of its aquifers are contaminated, and most of its farming is done on 140 million tiny farms tilled by hand. As a result, China is America’s top agricultural export market. Agricultural products are Arkansas’ number one export to China, and China is the state’s second largest export market behind Canada. Arkansas is exporting cotton, soybeans and pork to China, and soon it will be importing rice. Many Chinese aqua farms are contaminated, so catfish represents a big opportunity.
Other products exported by Arkansas include aircraft parts, which China doesn’t produce well. Also, China’s environmental catastrophe has led it to invest in America. Those investments include a $1.3 billion investment in a pulp mill in southern Arkansas because China has deforested its land.
“The next century does not belong to Chinese dominance but Chinese demand,” he said.
Haft said the usual national economic measuring stick, gross domestic product, is inaccurate because it measures spending rather than net worth and measures the value of a product based on the last place from where it was shipped. Counting the value of the components shipped from the United States to China would cut the trade imbalance in half. While China does maintain a manufacturing surplus, the United States enjoys a significant surplus with China in agriculture and services. Meanwhile, the country’s economic figures are artificially inflated by Communist Party provincial officials.
In reality, China’s economy has been slowing for years, he said. The United States’ national wealth is $60 trillion higher than China’s, and $30 trillion of that difference was created in the past five years.
“So this is not a country that is nipping on our heels and about to overtake us in the global economy,” he said.