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Will China Dominate This Century?
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November 23, 2009, Last Updated June 13, 2011
By Steve Greenfield and staff of CollectiveWizdom












Will China dominate the 21st century? Will China replace
America as the world's preeminent economic power? These
are questions that are being debated in the corridors of
academia, business and government around the world.
Until now, the case for ever-increasing Chinese dominance
was compelling. China has risen from a backwater agrarian
economy to the 2nd largest economy in the world in just
15 years. The graph line of China was an arrow pointed
straight up. But new, troubling trends on the economic
horizon have many experts predicting that that graph line
will soon start to turn downward.

China's preeminence is far from certain. It has 1.5 billion
people which gives it a huge domestic market to drive
growth but domestic demand will not sustain growth
unless the companies that produce goods for the company
remain strong. If China opens its markets to foreign
competition, it is likely that Chinese consumers, much like
American consumers, will choose foreign goods as often or
more often than Chinese goods. So, the true issue is will
China open its markets or be forced to open its markets by
foreign governments?


If China opens its markets, the likely winner in the long
race for preeminence will be the country able to deliver the
goods with value added. What gizmo does the most?
Which toy has the most whiz bang? Which luxury good can
bestow the most "class"? And that winner, based upon
history, is likely to come from North America, Europe or
Japan. The ultimate winners will likely be the
United States,
Germany, France or Japan.
These 3 countries are far and
away the leaders in innovation, patented research in the
world, and luxury goods production. Of the 3, the U.S.
dwarfs the other 2 n terms of patented research.


And the Chinese agree. In a recent poll of Chinese
published in the New York Times, more than 82% of the
Chinese believe that the US is a more innovative country
than any other in the world. And, as for luxury goods, the
Chinese thirst for fine living produced by the West is so
intense it has created a frenzy for quality Bordeaux wines,
according to a
new report in the French newspaper, Le
Nouvel Observateur.  

And there's the rub, for China. For perceptions of quality
tend to lead buying decisions.  This is the reason, you may
recall, why American consumers turned away from
American car makers in favor of Japanese car makers such
as Toyota and Hinda. Consumer perception was that the
Japanese make better cars. Hence, affluent Americans tend
have bought Lexus cars in droves. That has led to massive
shifts in consumer purchasing patterns. End of story. Now
Toyota leads the world in the number of cars
manufactured, and GM and Chrysler are often on the brink
of bankruptcy.

China's Growing Affluent Class May Threaten Its Stability




























However, as China's economy strengthens, that very
affluence may sow the seeds of a nettling problem that will
threaten its economic strength. Paradoxically, the rise of
affluence on the consumer level in China is a problem for
the Chinese. Why? Affluent consumers have a bothersome
habit of wanting to choose and think for themselves.
Money does that to people. That growing economic
assurance will doubtless mean that affluent Chinese will
increasingly want what affluent Americans and Germans
and Japanese want--freedom of choice.

A new study confirms this trend. The 2011 Private Wealth
Report on China by China Merchants Bank and Bain &
Company found that nearly
60% of the wealthy Chinese
interviewed are either considering emigrating their assets
to another country or have already done so. The
emigration to foreign countries of investable assets has
dire consequences for China, as it reduces China's share of
taxable assets over the long term. As tax revenues
decrease, so will China's ability to wield clout on the world
stage.

Over 51% of Chinese who have investable assets over 10
million 10 million Yuan ($1.53 million)  are looking to invest
outside of China.  Moreover, the super-wealthy are even
more eager to emigrate. Over 27% of all Chinese who
possess over 100 million Yuan worth ($15 million) have
already emigrated out of China and another 47% are
considering exiting.  In other words, the wealthy Chinese
are voting with their feet.

The overwhelming number of the wealthy who are leaving
China are re-locating in Western countries, with Canada,
the U.S. and Europe benefiting from the exodus of the
wealthy.


China's Export Miracle Is Threatened By Rising Labor Costs

In perhaps the most ominous cloud on the economic
horizon for China, rising labor costs are now threatening
the very foundation of the Chinese economic miracle.

Manufacturers from around the world --particularly,
American businesses --who flocked to China in the 80's
and 90's seeking cheap labor have been rudely awakened
by the new reality of rising wages. As
Time magazine
recently reported, wages in China's 5 largest
manufacturing provinces have risen 14% to 21% in just
the past 12 months. American business men and women
like Charles Hubbs are preparing to leave. His company,
Ghangzhou Fortunique has manufactured in China for 22
years, exporting pharmaceuticals to the US and other
countries. Now, labor costs have given him a wandering
eye. He's considering a move to Cambodia, where labor is
cheaper.

Says Hubbs:  "We've seen our wage costs in China go up
nearly 50% in the last two years alone," he says. "It's
harder to keep workers on now, and it's more expensive to
attract new ones. It's gotten to the point where I'm
actively looking for alternatives. I think I'll be out of here
entirely in a couple of years."



Bottom line. China's ability to sustain its growth in th 8%
to 10% level depends on its ability to keep a lid on its
domestic market, to abbreviate the buying choices available
to its consumers and the lid on rising labor costs. How long
can it keep the lid on? And, to complicate matters, will the
U.S., Germany, and Japan let China continue to play a
one-sided game of keeping its markets relatively closed
while having complete access to the markets of America
and Europe? Time will tell.

At some point, the carrot China is holding out of access to
a vast market of 1.5 billion people may lose its appeal, if
that carrot is not followed by genuine access.




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