Competition sparks benefits for both China and US

Source:Global Times Published: 2011-1-24 8:15:00

By Handel Jones

Washington rolled out the red carpet for Chinese President Hu Jintao last week. The Chinese leader was welcomed with open arms by US President Barack Obama and was invited to a rare intimate dinner at the White House.

China has responded by providing $45 billion in orders to US corporations, with Boeing receiving a $19 billion order for 200 commercial aircrafts, which was higher than the $15.6 billion order given to Airbus. Other US corporations getting contracts include GE, Honeywell, Caterpillar, and Westinghouse. The contracts signed are expected to provide 235,000 jobs.

The US response to this visit was radically different from the position in October 2010 when the high value of the yuan was considered one of the main causes of US financial problems. This came at a time when mid-term elections meant politicians were happy to use China as the enemy.

The present position of the leadership in Washington is much more rational. The US and China can provide mutual benefits to each other as long as there is cooperation. It is also essential that each country understand the motivations of the other country.

An environment of trust and understanding must be built for long-term benefits. The industrial base as well as the political base of both countries needs to be closely aligned.

In the past 30 years, China has grown by providing low-cost labor and cheap goods to the US and the rest of the world. To continue growing and satisfying the needs of its people, China needs to build its capability base in high technology. Middle-class jobs must be built, and university graduates need challenging jobs.

Collaboration with US companies such as GE, IBM, and Honeywell can accomplish the goal of building a technology base.

China also has the option of collaborating with European and Japanese companies in addition to US companies, which means there is bargaining power.

More importantly, China has a very large market that is attractive to US corporations as well as other foreign corporations. The American Chamber of Commerce in Shanghai recently reported strong revenue growth and increased profits for most of the 346 US companies in the past three years. Cooperation can provide access to the China market, but there are costs.

US corporations are ideal partners for their Chinese counterparts in a number of key business areas. The joint venture that GE established with Aviation Industry Corporation of China for avionics for the new 150- to 200-seat commercial airplane that is being developed in China is potentially a win-win situation for both companies. 


In 2009, China operated with a current account balance of $296.2 billion, while the US had a current account deficit of $380.1 billion. China is able to pay its share of investments in new industries, but the US needs China to continue being its banker.

The benefits for China to cooperate with the US are clear, and it is important that an environment of trust is built. The US cannot oscillate between praising China and blaming China.

The benefits to the US from having a cooperative and, at the same time, competitive relationship with China, however, are more complex.

China is a large market, and the US needs to make goods that can be sold to China, which gives more jobs in the US.

It is, however, important for the US to protect its competitive edge in technology, so that in the future, the US can still be a technology leader.

This means that the US needs to accelerate its technology development activities.

The US needs to treat China as an equal partner but understand that China is a formidable competitor. With this perspective, both sides can benefit.

Hu has stressed the concept of cooperation and the building of trust.

These concepts are very important and need to be strengthened.

Long-term strategic planning is important for the US, so that short-term market gains are not sacrificed for long-term competitive positions. The uneasy partnership between China and the US is at a more positive stage than a few months ago.

The Obama-Hu meetings will be a crucial part of continuing to build trust, friendship, and cooperation between the US and China.

The author is an economic commentator and the author of Chinamerica.

Posted in: Viewpoint

blog comments powered by Disqus