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News
A boy
who is waiting to greet U.S. Secretary
of
State Hillary Clinton at the… (SHANNON STAPLETON/REUTERS )
Does China own the
future — or does the U.S.?
By Vivek Wadhwa,December 13, 2012 (http://articles.washingtonpost.com)
Policy makers worry about the implications of a rising China,
leading some to wonder whether China will own the future. China may
well defy gravity and continue on its growth trajectory for a couple
more years, but I predict the growth will not last. Technology will
accelerate forces that are already at play. This means the more
likely scenario—the one that we should worry about—is a falling
China. Such a decline will likely create greater nightmares for
China’s neighbors and for the United States.
Three factors are at play that will likely shake the Chinese
government.
First, there are indications that China has peaked as a
manufacturing hub and that manufacturing is returning to the United
States. I have written about the advances in robotics, artificial
intelligence, and 3D printing that will erode and ultimately
eliminate China’s labor-cost advantage. Even before these advances
change the manufacturing industry, American companies are realizing
that they may have overestimated the cost savings of doing business
with China and are increasingly concerned by the intellectual
property theft. Now, companies are looking for ways to bring
manufacturing back to the United States. General Electric, for
example, has again started manufacturing some appliances at
Appliance Park, in Louisville, Ky. and is looking to expand its
workforce there. Meanwhile, Apple CEO Tim Cook is talking about
bringing manufacturing jobs back to the United States. Even Taiwan’s
Foxconn says it is looking to expand into the U.S.
Expect this trickle to become a flood over the next 5-to-7 years as
key parts of the supply chain move West, automation technologies
advance, and as American workers develop the skills needed for
running advanced manufacturing plants. This is also likely to wreak
havoc on the growing, albeit struggling Chinese economy.
Second, China has spent hundreds of billions of dollars on
infrastructure and commercial construction projects. Real-estate
bubbles, an ocean of bad debt, inflation, and soaring wages have
resulted. The government has also made big bets on last-generation
technologies in solar, transportation, and batteries. Imagine a
hundred Solyandras in nearly every industry — bad investments that
are coming home to roost.
Finally, Chinese society is rapidly changing. Internet
connectivity and social media are informing the populace of abuses
of power, corruption, a growing wealth gap and the harm being done
to the environment. Unrest is building and mass-protests are
becoming more common.
It used to be that only the elite had access to Web-connected
computers with video capability while the government’s propaganda
machine controlled information and told the public what to believe.
Over the last few years, the prices of tablet computers in China
have dropped significantly, making them affordable for the majority
of the population, leading to a dramatic increase in Internet usage.
Now, a technologically savvy populace is working around the
government’s firewalls and becoming aware of world events. They are
also learning what their fellow countrymen really think.
Put all these factors together, and the risks that China faces
become apparent: increasing unemployment, a slowing economy, and
growing unrest. If past is prologue, China will resort to
protectionist measures. It will try to manipulate its currency
perhaps, generating a backlash from the international community.
Then, it will likely try to erect greater trade barriers, with the
potential weapon in such a trade war being its patents.
Encouraged by misguided U.S. policy makers, who have long touted the
patent system as an enabler of innovation, China started amassing a
large portfolio of patents roughly a decade ago. It provided
academics, companies, and individuals significant incentives to
patent ideas, including those copied from the West. With higher
numbers of patent filings, professors in universities gain tenure,
workers and students are granted residence permits to live in
desirable cities, corporate income tax is reduced, and companies are
offered lucrative government contracts. In 2011, 526,000 patent
applications were filed in China—one quarter of all the filings in
the world and more than the 503,582 filed in the U.S. that year.
Many of these patents in China, when awarded, provide little more
utility than extorting licensing fees from foreign companies that do
business there.
Then there’s the problem of escalating nationalism. Just as China
escalated its nationalist rhetoric against Japan over the Senkaku
Islands (called the Diaoyu by the Chinese), it may try to divert
attention from economic problems by fermenting a nationalist fervor
against the West. There is a big unknown in what this escalation of
propaganda might do should it occur.
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