The Chinese Economy
The People's Republic of China is the world's second largest economy after the United States. It is the world's fastest-growing major economy, with average growth rates of 10% for the past 30 years. China is also the largest exporter and second largest importer of goods in the world. China became the world's top manufacturer in 2011, surpassing the United States. For 2010, inbound foreign direct investment into China surpassed $100bn for the first time, and investment overseas by Chinese companies in non-financial sectors totaled $59 billion. The country's per capita GDP (PPP) is $7,518 (IMF, 93rd in the world) in 2010. The provinces in the coastal regions of China tend to be more industrialized, while regions in the hinterland are less developed.
China and the Political Economy of Global Engagement
In many respects it was not until 1992 that China really began to engage with the global economy in a significant way. In an inspection tour of development in southern China in 1992, Deng Xiaoping praised the emergence of proto-capitalist practices in open areas and called for further opening. Following Deng’s exhortations, the CCP declared in October 1992 that China now had a ‘socialist market economy’—the ideological battle appeared to have been won, and this victory was given further force when 1993 saw more FDI flood into China than in the preceding 14 years of reform put together. A trade deficit in 1992 was turned into surplus as exports doubled in the space of five years on the back of FDI growth.
Winners and Losers Promoting exporting industries had proved to be a highly successful means of generating growth. Rural reform in China had released excess workers from the land, many of whom found employment in small-scale township and village enterprises (TVEs), which accounted for around a third of all exports in the l990s. Foreign- invested enterprises (FIEs) also generated new jobs and economic growth without the need to find domestic sources of investment. Chinese economists estimate that every 100 million yuan (US$12.05 million) of exports provides 120,000 jobs—on this basis, over 52 million jobs in 2003 were supported by export-based industries. But the key question for policy-makers was whether domestic producers could compete with imports from more efficient foreign producers if the Chinese market became fully integrated into the global economy. Thus, a dualistic trade regime was created: on one side, a relatively liberal internationalized export system built on supporting exporters and encouraging FDI to produce exports for external markets; on the other, a relatively protected domestic system with domestic producers protected from international competition through high tariffs and quotas, the lack of currency convertibility, state-set exchange rates, and strictly limited external access to domestic financial markets. In its own terms, the strategy was a great success. Domestic producers were freed from the challenges of competition, while exporters were given an advantageous position to develop external markets—not least after the devaluation of the yuan or renminbi (RMB) in 1994 made exporting from China to the West increasingly profitable. Furthermore, the closed nature of the Chinese financial system meant that China was not affected by the financial crises that caused so much damage to other East Asian economies in 1997.
Joining the WTO
Given the success, in its own terms, of this policy of engaging while protecting, it was something of a surprise when the Chinese leadership signed a deal with the United States in 1999 that paved the way for entry into the World Trade Organization (WTO) in 2001. Or more correctly, it was a surprise that they agreed to join the WTO on terms that, theoretically at least, should reduce much of the protection previously afforded to domestic producers. In order to join the WTO, prospective members must gain the acceptance of any existing member that requests a bilateral agreement. In China’s case, the most important bilateral partners were the United States and the European Union, and the specific terms of Chinese entry owed much to the criteria that they laid down. But the Chinese authorities did not have to accept these criteria and did not have to join the WTO, so why did they decide to loosen the dualistic trading regime that had apparently served China so well in previous years? The answer is partially found in the desire to stabilize access to key markets in the West and to avoid the uncertainty created by the annual vote on Chinese trade in the US Congress. It is also partly found in a Chinese desire to shape the future rules of world trade from inside the WTO, as opposed to looking on powerlessly from the outside. But the main explanation is found in the changing conception of some Chinese leaders of what was best for the Chinese economy. For Zhu Rongji, the then Prime Minister, protecting domestic producers from competition was doing nothing to promote greater efficiency and the rationalization of the Chinese economy. Previous attempts at greater domestic reform had met with resistance from domestic actors, mainly but not only at the subnational level, who did not share his vision. Zhu’s push for WTO entry, then, can be seen as representing an ideological acceptance of the efficacy of neo-liberalism as the best way of generating long-term sustainable growth within China. And the most effective way of promoting this approach within China was to use an external agreement to enforce liberalization on reluctant domestic actors. Joining the WTO did not result in the total liberalization of the economy overnight. In addition to the phasing in over time of a number of the reforms, many of the officials who were sceptical about liberalization before WTO entry are now charged with making the Chinese economy WTO-compliant. Some are concerned about the loss of the ‘bureaucratic power base’ that would result from implementing WTO criteria, while others are more concerned about the potential impact on rural incomes and urban unemployment. As a result, WTO agreements have been interpreted and implemented in ways that have at times undermined the liberalizing logic of the 2001 WTO agreement. So we should be wary of assuming that WTO entry has massively reduced the capacity of the Chinese leadership to control China’s own economic destiny in the face of WTO-inspired liberalization agendas. But in terms of intention, and partially in execution, joining the WTO marks a key turning point in China’s relationship with the global political economy

The Investment-Trade Nexus
One of the most striking features about China’s position in the global political economy is the extent to which FDl has contributed to China’s economic growth. Cumulative FDI into China since 1978 passed the US$400 billion figures at the start of 2003, with China accounting for around 20 per cent of global FDI in developing countries. Unlike other developing states in East Asia, China has not attracted large amounts of ‘hot capital’—not least because of the still relatively closed nature of the Chinese financial sector combined with the lack of currency convertibility—with almost all FDI being in productive capacity.
FDI into China takes two forms—market- accessing investment and investment for export production. The latter dominates FDI into China, accounting for at least two-thirds of all FDI , and FIEs account for over half of all Chinese trade. For market-based investors, the main pull is access to a market of over 1.3 billion Chinese consumers. Of course, the reality is that only a small proportion of the Chinese population earn enough money to buy the more expensive goods produced by foreign firms in China. The real market is probably something in the region of 150 million—not inconsiderable in itself—but the future potential market that China might provide is the attraction for many. Cheap labour remains a dominant reason for export-based investors. For example, wages in the Chinese textile industry are just 4 per cent of comparable Japanese manufacturing wages. The UK shoe manufacturer, Doctor Martens, relocated its production from the UK, where wages were just under US$2,000 a month, to China, where workers get just US$100 a month plus accommodation and work almost 50 per cent longer each week. Even when the cost of transporting raw materials to China and finished goods back to the West are added on, production costs can be massively lowered by shifting manufacturing to China. But it is not all about cheap labour. As noted above, manipulating exchange rates to keep exports cheap has also attracted FDI. Although this increases the price of imported components used in the production of exports, investors find it relatively easy to negotiate tax rebates and export subsidies as China’s numerous local governments and development zones compete with each other to attract investment. Indeed, as China joined the WTO, most imports came into China tariff-free in the form of components that were processed and subsequently re-exported as finished goods.” Some scholars also point to the importance of a physical infrastructure that facilitates the quick and easy flow of components into China and finished goods out.” In this respect, the Chinese government (both local and national) has spent huge amounts of money facilitating international economic interaction through the construction of roads and harbours.
It is difficult to overstate the importance of this FDI-export nexus for the Chinese economy. Annual average growth rates of around 8 per cent would have been unattainable; those areas engaged in export production have the highest per capita GDP rates; it has had a positive impact on balance of payments and foreign currency reserves; FDI has created new jobs, upgraded skills, raised factor productivity, increased technology transfer, and encouraged reform of domestic Chinese industries. The investment-trade nexus for overall growth has been most important when what we might call the domestic economy has slowed. The declining profitability of TVEs (over 70 per cent were in debt by 1999) combined with the restructuring of the state- owned sector and an attack on inflation after 1994, resulted in annual negative growth in retail and consumer price indexes between 1998 and 2003. Massive government spending (both through a budget deficit and through directed lending via the banking system) helped maintain overall growth rates, but the major source of growth—and in particular the source of new jobs—during this period was foreign-invested export industries. The FDI-trade nexus is also important for students of international political economy as it raises a number of critical questions that have relevance not just for the way we think about China but also for how we think about the functioning of the global political economy in general. Given the importance of importing components into FIES to produce goods for export, it is perhaps not surprising that China coastal provinces with good international transport links account for the vast majority of both FDI and exports. Indeed, China’s engagement with the global economy is characterized by a massively uneven spatial distribution. Nearly 90 per cent of cumulative FDI since 1978 has gone to just eight coastal provinces and cities— Guangdong, Shanghai, Jiangsu, Fujian, Shandong, Tianjin, and Liaoning. Guangdong province has been the single biggest recipient, though its share of investment has declined as more FDI has moved to other coastal areas such as Shanghai and Liaoning. There are even large disparities within individual provinces.
Growth and Development
For many domestic and external observers, rapid growth built on the investment-trade nexus is one of China’s most impressive achievements of the post-Mao era. And the good news for proponents of neo-liberalism is that the figures suggest that the most open and liberal areas of China have the fastest growth and most wealth. Nevertheless, there is recognition in China that rapid economic growth can generate significant political problems. For example, there is concern over the consequences of the uneven spatial distribution of growth. Inequality as measured by the gini coefficient has risen dramatically in recent years from 0.288 in 1981 to 0.46 in 2002. China ranks at fifth in the list of most unequal economies, and has recorded the fastest-growing rates of inequality in the world in the last two decades. Of course, not all of this inequality can be put down to engagement with the global economy—the single biggest indicator of how well-off people are in China remains whether they live in and off the countryside or in an urban area. But the uneven impact of China insertion into the global economy has played its part. The Chinese government has tasked itself with balancing growth among regions by promoting the development of western China and the old industrial heartlands of state-planned China, which are now commonly referred to as China’s ‘rust belt’. But the Chinese leadership’s ability to control China’s own economic destiny is not what it was in the old days when state ownership and state planning dominated. The importance of foreign investment as a source of capital accumulation means that the investment decisions of foreign companies have a profound impact on what happens in the Chinese economy. The Chinese leadership might want to move the focus of investment to the west and might want to change the nature of economic activity, but the reality of life in the global political economy is that governments alone cannot dictate what is produced, how it is produced, or where it is produced. In theoretical terms, we need to consider what we mean by international economic integration. Whether we take geography or economic sectors as the starting point, only parts of China have become integrated into the global economy And as FIEs in China rely heavily on imported components in the exports from China, there has been a remarkably small footprint or trickle-down from FDI onto other parts of the economy. The value of exports from FIEs actually surpassed the value of their imports for the first time in 1998—though this is a very rough indicator as it includes all imports, not just those used to produce exports. Even since 1998, the value of imports of FIEs has remained at about 98 per cent of the value of exports. If we look at the processing trade alone, then figures from the China Association of Enterprises with Foreign Investment show that imports accounted for 86.5 per cent of the value of FIE processing trade exports in 2000. Imported components are particularly important in high-tech industries. The overwhelming majority of foreign producers in China continue to source their high-tech components overseas, primarily from Southeast Asia, Taiwan, and Japan. As Chinese exports of high-tech goods increased, so, too, did imports of components for high-tech commodities. For example, when the Chinese authorities reported a 58.3 per cent increase in the export of high-tech goods in August 2004, they also announced a 40.7 per cent increase in high-tech imports. While the growth of exports was faster than the growth of imports, the value of exports at US$83.8 billion was still less than the value of imports (mainly integrated circuits and digital-control machine tools) at US$86.46 billion) Thus, in many respects those internationalized parts of China can have more linkages with external economies than with other parts of China itself. As such, we need to consider whether international economic integration can actually generate national economic fragmentation. A second issue we need to consider is whether growth and development are necessarily the same things. For example, while economic growth has been surging in China, access to decent health, education, and welfare services in large parts of rural China has been declining. Furthermore, if the jobs being created in FIEs largely entail putting together components imported from other countries, where is the development of skills, knowledge, and technology that could create the basis for long-term sustainable economic development? In its extreme form, this can lead to what is termed ‘technology-less growth’, in that the technology base of the national economy is not advanced as economic growth occurs through the assembly of external productive forces rather than through domestic productive forces. Of course, wholly technology-less growth is a pure type that is not reflected in reality. Participation in the global economy has seen a technological upgrading. But the technological and developmental spillovers of export-oriented growth remain to be attained in many areas. Many of the jobs that have been created in FIEs are low-skilled and low-paid ones, often or usually employing young women recruited from China’s interior. Working hours are long and conditions often or usually are poor, with safety considerations ignored in the push to meet deadlines. For the workers, there is not a choice between these jobs and better-paid jobs with better working conditions elsewhere. Lack of training and skills means that the choice is between these jobs or no jobs, with millions of others willing to take up any vacancy. The mobility of international capital also means that investors, if production costs get too high, can easily pack up and move to cheaper sites—in another part of China or in other developing states emphasizing low-cost comparative advantage to attract investment.

Power and Production
Indeed, China has already become a beneficiary of the mobility of international capital. Economic growth is not a zero-sum game. Just because China grows, it does not necessarily mean that other countries suffer. But there is a strong line of thought that suggests that China’s growth is detrimental to the economic fortunes of other states. For example, the Japan External Trade Organization found a correlation between the rise of Chinese exports to the United States and Japan of specific goods and the decline in exports of those same goods from Malaysia, Thailand, Indonesia, and the Philippines. Malaysia’s Mahathir Mohamad has aired his concern that ‘There’s not much capital going around. Whatever there is gets sucked in by China’ ,‘ and it has been claimed that 16,000 jobs were lost in Penang alone in 2002 as major high-tech producers move capacity to China. And most analysts suggest that joining the WTO will only increase China’s competitive advantage as an export site for investors, particularly in the textiles sector. The potential problem for late-developing states emphasizing low costs as a means of attracting investment to spur export-led growth is that an even later developer with even lower costs might erode their comparative advantage. Nor is it just other developing states that are concerned about the impact of Chinese growth. As a report from the World Economic Forum noted: ‘From Tokyo to Milan, from Mexico City to Chicago, everyone is wondering whether China can continue to grow so fast and how their own jobs and businesses will be affected if it does.” Concern grows in Hong Kong, Japan, and Taiwan that their economies have become ‘hollowed out’ as the manufacturing bases move to China. And cheap imports from China were largely blamed for the loss of 270,000 US textile and apparel jobs, about a quarter of the workforce in these sectors in the space of two years.’ China’s emergence as a major international economic player clearly has massive significance for the global political economy. But we need to take more care when we think about the relationship between significance and power. Economic growth driven by the FDI-trade nexus has provided tax revenues that help fund increased military spending. China’s huge foreign currency reserves are also being channelled into buying US treasury bonds, in part at least funding the US budget deficit. And as Williams argues, this gives China a degree of power: ‘if push came to shove over, for example, the Taiwan Strait, all Beijing has to do is to mention the possibility of a sell order going down the wires. It would devastate the US economy more than any nuclear strike the Chinese could manage at the moment.” The Chinese market is important for some producers and will increase in importance in the future. Notwithstanding entry into the WTO, the Chinese authorities still have the power to restrict access to its market. For example, the provision of tax rebates to domestic producers of semiconductors protected Chinese producers from the full impact of international competition (and led to the United States making the first official complaint against Chinese policy to the WTO in 2004). But while it is important for specific producers in specific industries, the Chinese market has nowhere near the same structural power as that of the United States, or even of the EU. Domestic Chinese companies are also beginning to have an important global role. Lenovo (formerly Legend) is emerging as a power in the domestic computer industry while the Hai’er Group is developing an international profile in white consumer goods, such as kitchen appliances. China is also becoming increasingly important in outward investment to other economies—primarily in East and West Asia. Outward investment may only have been just over US$2 billion in 2003, but the trend is ever upward. But for the time being at least, much of China’s international economic presence remains dependent on external factors. On one level, it depends on continued demand in the major markets of the West. Interpreting direction of trade figures from China can be difficult due to the large amounts of exports to Hong Kong that are subsequently re-exported to third countries. But we can roughly calculate that two-thirds of all exports from China finally end up in the US, Japan, or the EU. On another level, it largely depends on investment decisions made by foreign companies to fuel its export growth. If we add domestic Chinese producers who produce under contract for export using imported foreign components with the exports of FIEs, then we can suggest that at least 60 per cent of Chinese exports are produced by or for external companies. And although first impressions suggest that investment from the rest of East Asia primarily drives China’s export growth, a closer examination reveals the importance of non- regional actors and interests.

Foreign Indirect Investment
FDI from ‘developed’ states into China has increased in recent years, not least as a result of increased market access in the wake of China’s WTO entry. Nevertheless, a dominant theme throughout the literature on FDI in China is the significance of investment that comes from the rest of Asia in general and from ‘Chinese Asia’ in particular. Houde and Lee calculate that between 1993 and 1998, Hong Kong provided over half of all investment into China, Taiwan nearly 8 per cent, and Singapore around 4.5 per cent. Similarly, Charles Wolf calculates that ‘two-thirds [of all investment has] come from “overseas” Chinese, especially overseas Chinese in Taiwan, Hong Kong, and Southeast Asia.’ If we add investment from Japan, then the figure for Asia as a whole rises to nearly 80 per cent, with Europe and North America each accounting for between 7 and 9 per cent depending on which figures are used. Some care is necessary when interpreting these statistics. Probably around a quarter of all investment into China originates from China itself and is routed through Hong Kong to take advantage of the special incentives afforded to foreign investors. And in recent years we have seen an extraordinary rise of investment from the British Virgin Islands (now the second biggest source of FDI in China), the Cayman Islands, and Bermuda. Available evidence suggests that this is predominantly a result of Taiwanese and Hong Kong companies incorporating in these tax havens. Not surprisingly, the extent of Asian investment in China, combined with the concomitant trade flows, has led many to focus on intra-Asian economic regionalization as a new driving force in the global political economy. For example, one strand in the literature emphasizes the importance of links between expatriate Chinese businesses in the Chinese diaspora and investment into China. This literature concentrates on the ‘bamboo networks’ that link Chinese family businesses to China’s growing international economic relations. The emphasis here is on cultural ties between ethnic Chinese across Asia and the Chinese ‘homeland’—ties of loyalty and trust, cultural understanding, common language, and also closer ties with government officials than those afforded to non-Chinese. Another strand in the literature emphasizes the emergence of an integrated economy spanning a ‘Greater China’ economic space that includes the national boundaries of ‘Chinese’ territories—Macao, Hong Kong, Taiwan, and the People’s Republic of China. The term ‘Greater China’ remains a contested one with no clearly accepted understanding. Not least, there is the question of whether this integrated economy includes all of China or just those coastal provinces that dominate China’s international economic relations. Even then, some argue that the low level of economic interaction between China’s ‘internationalized’ provinces suggests that there is not a single region’ but a number of overlapping sub- or micro-regions. It is for this reason that Naughton’s framework provides the most efficacious understanding of Greater China—primarily because he eschews a definitive definition and instead deploys a fluid multi-level approach.’ At the lowest level, there is a Greater China circle that covers the most intense level of integration—that between Hong Kong and the Pearl River delta of Guangdong. The second level of integration covers the most internationalized provinces of China (Guangdong and Fujian), Hong Kong, and Taiwan. The highest level circle, which has yet to see full integration, could comprise the three Chinese economies in total, that is, all of China as well as Hong Kong and Taiwan. While it is right and important to consider these regional processes and their implications for national politics, there is a danger that the emphasis on regional processes misses the salience of extra-regional actors. In particular, we need to consider the way that companies in Hong Kong, Singapore, and Taiwan play the role of intermediaries between China and the global political economy, suggesting that processes of regionalization are themselves often dependent on global processes. If we think about the way that production of individual goods has become increasingly internationally fragmented in production networks, then we can find evidence to suggest that non-Asian economic interests have played a much bigger role in the Chinese economy—particularly in the last few years—than studying bilateral trade and investment figures will ever be able to reveal. On a very basic level, international companies have long been routing their investment into China through subsidiary offices in Hong Kong. The use of subsidiaries in Hong Kong is a particularly important element in Japanese investment in southern China. Although sorting through the statistics is an inexact science, Matsuzaki has estimated that about 80 per cent of Japanese FDI in Hong Kong is subsequently reinvested in Guangdong province alone, showing up on the FDI statistics as investment from I-long Kong.’ We should also consider the importance of original equipment manufacturing (OEM)—a system where companies produce goods under licence deals with other companies. The best and most important example is in the Taiwanese computer industry. Around 70 per cent of all computer-related goods produced by Taiwanese firms are based on OEM contracts with foreign firms—primarily from the United States and Japan.’ Most significantly for the discussion here, Taiwanese computer companies have embraced this changing manufacturing structure and located themselves as key links in the production chain. At a ‘higher’ level, they sign OEM agreements to produce computers using foreign technology and operating platforms. At a “lower” level, they have outsourced the low-tech and low value-added elements of production to China to maintain cost efficiency.” Such OEM-based investment from Taiwanese companies in the computer industry is now a major source of Taiwanese investment in China. Indeed, nearly three-quarters of China’s computer- related products are produced by Taiwanese companies, which are themselves dependent on OEM contracts with Japanese and US companies.’ As such, the regional economic integration taking place across national borders in Greater China is the end stage of a production process that spans the most industrialized global economies such as the United States and Japan, intermediate states such as Taiwan, and developing states like China. Another increasingly important source of FDI into China is subcontracted investment. Here, third-country investors do not invest in China either directly or through regional offices, but instead subcontract production to investment companies within the East Asia region itself. In these cases, investment figures for China will show a transfer from the intermediary company country and not from the original investor country. A second type of subcontracting is where the third-country company subcontracts to a regional intermediary, which then produces in China on a contract basis. In these cases, no investment will be recorded as the transactions are on a processing fee basis, even further disguising the original investors’ involvement in the Chinese economy. Such investment has been a major element in Western companies’ involvement in China in textiles, clothing and shoes, toys, and more recently, electronics. For example, the Pou-Chen company in Taiwan produces about one in seven of the world’s sport shoes in its factories in China (and now Vietnam) on contracts with foreign companies—Nike, Reebok, New Balance, Adidas, Timberland, Asics, Puma, Hi-Tec, Lotto, LA Gear, Mitre, and so on. FDI figures for China will show another Taiwanese project, but the real originators of this investment are located elsewhere. Major investment companies such as the Swire Group and the Jardine Matheson Group have long acted as intermediaries between China and the global economy. Perhaps less well known are the plethora of Hong Kong-owned companies such as Li and Fung, which act as intermediaries in the global supply chain. More recently, Taiwanese companies have also developed such an intermediary role in accessing China through companies such as Pou-Chen, BenQ, and Hon Hai Precision Industry.’ There are four main reasons why these intermediary companies have established themselves as a link between foreign producers and China. First, Rodrik has noted a tendency to subcontract to countries with poor labour standards rather than invest there directly.’ This assertion is supported by interviews with what must remain an unnamed intermediary company in Hong Kong. Certain US- based companies, which again must remain unnamed, use subcontracting through Hong Kong because they fear that being associated with sweatshop production would severely damage their image (and therefore sales) at home. Second, the intermediary companies market themselves as matchmakers with specialist expertise and specialist knowledge of China—technical, cultural, and linguistic. Third, the contract manufacturers have established reputations as reliable partners and are seen as more reliable than Chinese producers. They can manage the entire production process from sourcing raw materials to the delivery of finished goods on time and at good quality. Fourth, subcontracting production means that multinational producers do not need to employ their own workforce, pay them pensions, and keep them on when economic times get hard. Brand-name producers can simply increase or decrease their orders to contractors as the market demands. Many of the world’s leading brand-name producers simply do not produce anything themselves any more. The headquarters company concentrates on establishing the brand name, marketing, and advertising while devolving the actual production process to reliable subcontractors. And while it has long been a feature of the production of toys, textiles, and clothing, it is now also ‘one of the fastest growing segments in the IT [information technology] industry’.’ In the IT industry five major contracting companies of North American origin now play a pivotal role in the production of consumer electronics—Solectron, Flextronics, SCI, and Jabil Circuits from the United States and Celestica from Canada. As China has become the ‘world’s outsourcer of first resort’,” it has become engaged in this global division of production—typically at the low- tech and low value-added processing stage. Singapore Flextronics, for example, invests in China on behalf of Microsoft, Motorola, Dell, Palm, and Sony Erickson. In all these cases, the ‘Made in China’ brand will appear on the product—a product that carries a non-Chinese brand name—but the investment and trade figures will show inter- Asian trade and investment.

Regional economic integration is taking place but is more dependent on actors and interests from outside the region than the statistics initially suggest. Similarly, the Chinese economy is clearly becoming more important for the global political economy—but again, Chinese economic growth, and export growth in particular, is more reliant on extra-regional actors than appears at first sight. The prima facie evidence suggests that US companies have been much more engaged with the Chinese economy than the investment and trade figures suggest, albeit through third-party actors. The evidence also suggests that Japanese companies have been even more important than previous studies have indicated. If you want to test this idea, check clothing, electronics, and so on and see where they are made. If they say ‘Made in China’, look at the brand name and think what country you identify that brand name with. If you are surprised that you have a Chinese product, it’s because you were buying the item based on its brand name, not its nationality. But how can we really identify the nationality of a specific product? If a plastic toy says ‘Made in China’, but it is produced for a US company by a Taiwanese contractor using imported raw materials from the Middle East and Japan, can we really say that it is Chinese? If we buy a computer with an American brand name using Taiwanese components sourced through a company in Singapore and assembled in China, what is its nationality? So perhaps it is wrong to ask if China—or the United States or Japan—has economic power. Instead, we might consider how transnational production networks spanning different political boundaries provide another denationalized source of power in the global political economy. Competition from China might indeed have led to the loss of jobs in the United States in some areas. But some US-based companies are reaping the rewards of China’s growth through lower costs and increased profits. So, too, are the individuals and investment companies that own shares in these companies. Some Japanese workers have been losing their jobs as production (particularly in the textiles and apparel industries) moves to China, but Japanese companies have maintained and increased their profits by outsourcing production to China—often through intermediary companies in Taiwan and Hong Kong—and Japanese consumers are reaping the benefits through cheaper prices.
Conclusion
The above analysis suggests that while China is clearly important for the global political economy, we need to be careful not to equate importance and significance with power. China’s insertion into the global political economy could not have occurred without the actions of Chinese government officials at both the national and local levels. But how this insertion has evolved owes as much to the interests and actions of external non-state actors as it does to the decisions and policies of Chinese state elites. The speed at which China has changed over the last two decades has at times been bewildering. Even if the pace of change slows, we have to be aware that the China of tomorrow will be very different from the China of today. For the time being, Chinese economic growth is heavily unbalanced in terms of the dependence on exports as an engine of growth and in terms of the distribution of the benefits of this growth within China. Developing the domestic economy as a market for itself would reduce the dependency on external factors for economic growth. It might also reduce regional inequalities—although the evidence to date is that the new middle class with disposable income and materialistic aspirations disproportionately live in the cities in eastern China. For the time being, Chinese export industries typically occupy labour-intensive low value-added stages of global production processes. Other countries in East Asia previously emphasized low value- added production, but subsequently developed domestic industries and moved to more advanced higher value-added stages of the production process. Having emulated other regional states in the initial process of insertion into the global economy, the challenge for Chinese policy-makers and business elites is now to emulate those regional states that successfully altered their production structures and participation in the global economy.