Of Eagles And Dragons

• America doesn’t produce anything anymore. This is probably the biggest myth going. The United States’ 155 million workers account for roughly 2 percent of the world’s population, yet we produce more than 20 percent of the world’s goods and services. Comparatively, China’s per capita GDP ranks it 94th in the world for productivity. Increasingly, America produces products which require a disciplined, educated workforce, as opposed to the Chinese economy, which often only requires able bodies.

•American jobs are being shipped overseas, and we’ll never get them back. Wrong. While reducing the cost of labor was a major rationale for the initial bout of outsourcing, we’re seeing significant cultural, political, and economic shifts in China which are making it less attractive to American manufacturers. The original glut of cheap Chinese labor has ceded, leaving working better positioned to negotiate for improved working conditions, better wages, and more benefits. The result is that Chinese labor has seen a 400 percent increase in wages in the last 10 years.

The increase in wages, coupled with piracy issues have made China a less desirable place for American companies to manufacture their goods, meaning that many companies are choosing to invest in building factories in the U.S. This will continue until and unless the Chinese government gets serious about enforcing patent and copyright laws.

• China doesn’t consume American goods. This is absolutely false. Rising wages in China have created a demand for many of the creature comforts of the American middle class. As a result, there is a burgeoning demand for American-made goods and services, and American exports to China have seen a 600 percent increase since the year 2000.

•America is just too small to compete with China’s 1.34 billion people. We rarely think of China as a place with a shrinking population, but the country’s one-child, one-family policy could leave it with the effects of a workforce and population shortage similar to those felt in Japan.

Consider that for each set of two parents there is one child, and for each set of four grandparents there is one grandchild. If there was an even ratio of boys to girls, which we know is far from the situation, under this scheme the population would be cut in half with each generation (100 parents would have 50 children, who would produce 25 grandchildren, and 12.5 great-grandchildren.) An economy cannot grow with a shrinking work force, just ask Japan (where adult diapers now outsell diapers for children).

The American economy is not perfect, but the doom, gloom, and fear propagated by the media are largely unfounded. Quite to the contrary. If China can prove itself as a fertile place for modern trade, while avoiding many of the pitfalls which have proven to hamper growth in other Asian nations, this could be the most exciting time for trade with the Far East since Marco Polo.

Stephen Kyne is a partner at Sterling Manor Financial.