USA vs CHINA: Why China still has a long, long road to travel… (by a wondering MBA)

The question beckons as we move on, and as the term ‘multi-polar’ is associated with the world in earnest. The recent statement by a Pakistani envoy in this regard seems to be a confused acceptance by the desperate loner in search of a new power to stick to. Russia, a spent but still a formidable power and China, the darling of the world since the 1990s, are very probable candidates to fill the vacancy of the world superpowers, not that it has been vacated just yet.

China seems to be the favorite though, ahead of Russia by miles, especially from an economic stand-point. Books have now been written on when China will rise to claim the throne. One book in fact is named ‘When China rules the world’, by Martin Jacques. But scaling the legacy of the United States of America still is a gargantuan task, and China does indeed have a long, arduous journey ahead.

A mild glance at history would tell you of the similar theories that floated around the 1980s with Japan in the fray. The economic rise of the tiny island nation was looked at with awe by the entire world, and books were published then as well on the world-dominance by Japan of the world. Where those theories and those who propagated them fizzled out, is anybody’s guess.

There are plenty of factors why China, for the foreseeable future, cannot match America’s might. Not just yet. And perhaps never.

China’s ascent has been nothing short of a miracle, backed by a massive credit boom, government spending and a debt-braving push by the authorities (China’s debt to GDP ranges around 270 per cent, among the highest in the world). Manufacturing and infrastructure-building have been the cornerstones of this communist empire, which made a rather convenient departure from communism in terms of the economy, much to its credit. Deng Xiaoping overhauled his Maoist inheritance to be limited to just administration, effectively converting his economy into a capitalist happy place. Over a period of 30 years, China became a meaty bone for a number of firms from the mature markets, all keen to take advantage of the burgeoning domestic market with increasing amounts of disposable income. Everyone was happy.

But perhaps it is the fast, brittle ascent that is a problem. Clocking over 10-11% growth for a number of years, China bulldozed poverty and emerged to become an upper middle-income country. China’s idea of growth was centered around borrowed money. The plan was, and to some extent still is, pump in money to make more money, something we see with our Indian start-ups today. The debt burden has swelled, and something similar to the 2008 crisis might be in the offing, courtesy China’s insatiable quest for fast growth.

The domestic industry never really flourished in a scale proportion to the economy. Sure they can boast of an Alibaba, a Xiaomi and a Huawei, but they are recent phenomenon, and rip-offs of American ideas. Xiaomi prizes itself on being the ‘cheaper’ Apple Inc. Quality yet seems to elude the industry, nor does it seem to be the focus. Of the two ways to strategic competence, an overwhelming majority of the Chinese companies seem to be choosing cost strategy rather than differentiation. But America’s Silicon Valley, on the contrary, is based on innovation, a more sustainable, long-term ploy for growth and economic prosperity. To some extent, this is also true for India.

A predominant reason for this is the protectionism of the Chinese environment. Google, Facebook, Twitter or any of the other internet giants is not allowed to operate freely in China. In the absence of competition, the Chinese are free to infringe ideas and replicate them, eventually claiming success. In India, this replication cannot work successfully because of its open market policy, and a showdown with the original is inevitable.

And then there is a huge over-valuation of China’s economic capabilities. China’s average citizen earns around US$ 8000 per annum, whereas the same number for the US is around US$ 54,000. That essentially shows the difference in standard of living between the two countries. People in the US have a quality of life that almost six times as better in China, which has often been debated as the best measure to view economic success. With over 1.3 billion people, China’s economy is just around 60% that of the US, which has only around 300 million people. A conclusion can also be drawn about the productivity of the people in the countries. The gap is eminent.

America, on the other hand, has grown consistently over the past two centuries, after consolidated efforts. Innovation has been the prime driver of growth and not imitation. While the debt pile of America also is huge, it has proven resilience to overcome economic shocks and has more cash to spare.

Militarily as well, there still are huge gaps that plague China. United States still has a distinct advantage in technology as well as in skill. China, by some wild estimates, can achieve air superiority over its western counterpart by 2030, but only in certain pockets. Despite its over 2 million strong army, the weaponry is still highly outdated and cannot match the superior American technology. Chinese navy’s presence is mostly limited to Asia, in contrast with the vast expanse that the US navy commands.

Perhaps one of the most important aspects on why China still remains quite a few shades below the US in economy, defense and influence is its communist culture, which spills over on to the authenticity of data and cultural creativity. China’s film industry still remains woefully small compared to Bollywood or Hollywood, partially owing to the language barrier, and mostly because most movies happen to be nothing more than propaganda devices. This has been true for all regimes born out of a communist ideology, be it the USSR, or even North Korea. The media, another instrument that ideally should possess sovereignty, but unfortunately is not, and essentially says what its Communist bosses want it to say.

As a result, the cultural export is stymied, and is limited to Kung Fu, Chinese food and Jackie Chan (though Hollywood’s role is pivotal in the case of the latter). American cultural influence far exceeds that of the Chinese by every parameter, owing to a bustling movie, cartoon, television environment and a vibrant, multi-faceted media.

This curb also raises questions on the quality of the data the country lets out. For instance, while other major economies like India, US, UK et al set growth deadlines and miss them (frequently or occasionally), open up to the media about the methodology followed and also counter questions on the authenticity of the results so provided, China does none of that. The Chinese deadlines seem to have been almost always reached, there are hardly any counter-questions allowed, and nor are there any independent sources to substantiate the veracity of the data in China.

America’s allies are some of the most influential, powerful and advanced countries on Earth, who don’t necessarily harp on America’s money to survive. But the Chinese Axis involves countries that look up to the Asian behemoth and see a savior. Countries like Pakistan and North Korea have no locus standi on most international matters as influencers, and are rather considered nuisances.

China’s efforts to successfully create a pole that can stand its own in front of the United States needs a lot of work. And still it may never happen.

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Written by: Shankar Ananth (PGPIM, Batch of 2015-2017)

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