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June 30, 2006

Economics and U.S.-China Trade
Pieter Bottelier

According to Pieter Bottelier, adjunct Professor at Johns Hopkins University, SAIS and a Senior Advisor at the World Bank, “China’s rise is without precedent or parallel in the developing world.” As the country gains more economic power and trade between our two nations increase, the race to understand the Chinese economy heightens. Bottelier gave the Policymakers insight into the Chinese economy and the status of trade relations between the U.S. and China. He gave a historical overview of the Chinese economy and their growth strategy.

When Deng Xiaoping decided to change the economic path of China’s development from state planned to market based, the Chinese leadership had no successful example to follow. While many countries were following the “Washington Consensus” and countries from the former Soviet Union were struggling to develop, China developed their own “Beijing Consensus.” China also decided not to follow the Asian Tiger’s model of export-oriented development. While many China observers may believe that exports drive China’s economy, Bottelier believes that domestic demand is the prime force behind China’s unprecedented growth. The domestic rate of savings and investment rates in China are unusually high and has helped to fuel development.

Bottelier believes that China has one of the most open economies in the world and that China has been a prime beneficiary of economic globalization.

There have been many comparisons between China and India’s economies as both have maintained astounding growth rates over the last decade. In China, the state has concentrated on infrastructure, urban development and manufacturing to an extent not seen in India. In addition, India looks to China as an example of how to continue their development.

China faces many growing problems. These problems include too much reliance on growth in investment, a tendency to over-invest and create excess capacity, an investment pattern too focused on capital-intensive industries, a weak financial sector serious environmental degradation, growing disparity between rich & poor, urban & rural, access to social services and inadequate protection of IPR laws. Finally, Bottelier believes that the “combination of growing domestic economic liberalism and continued political authoritarianism is becoming increasingly incongruent.”

Between the problems and the fantastic growth over the past two decades lies risks and opportunities for both China and the global economy. China is now more vulnerable than ever to external shocks and there is a worry that China may become dependent on foreign capital inflows. China’s labor force is five times as large as America’s, and as workers enter the global economy, workers all across the world will feel their effects. China’s growing economy also means they need more energy and scarce resources – which may drive up prices. Even with potential negatives, a recent study commissioned by the U.S-China Business Council showed that the U.S. economy as a whole is reaping significant benefits from trade and investments with China, even though certain sectors are experiencing decline.

Pieter Bottelier suggested the following two links for further reading, as well as the book, “China: The Balance Sheet. What the World Needs to Know Now about the Emerging Superpower”.



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