China’s Aspirations For Emerging Economies
By: Samm Wiggins Jr.
Tags: Japan, Emerging Markets, United States, Economics, China

A New Regional Power…

The trade deficit between the United States and China is a result of the US’s position as the world’s largest final consumer. The US has sustained this status for decades; however, the Chinese aspire to replace them in the near future. To successfully achieve this status, China must grow their middle class if they want to be able to promote discretionary spending and outsourcing lower paying jobs to local economies. The Chinese currently sustain the highest personal savings rate in the world of 50 percent. In contrast, the United States sustain one of the lowest, 7.6%. This is due to the America’s sustainability of the middle class and entertainment driven economic culture. The Chinese look to increase their net spending through the connection of trade routes through BRI (The Belt and Road Initiative), and outsourced manufacturing jobs to local Emerging Asian economies.

The United States trade deficit with China has been viewed as a threat to local Asian economies. With the new BRI, local Emerging Asian economies will bilaterally increase their exports to China as China continues to increase their imports from the United States. Thus, eliminating China as a threat to local economies, but rather a key factor in promoting economic stimulus. The figure below illustrates how the US and Japanese have decreased their foreign direct investment (FDI) into China, meanwhile, East Asian economies have been increasing their FDI. This initiative will give China a powerful political and economic foothold in developing countries where the American influence appears to be weakening.

China’s Foreign Direct Investment Inflows by Source

China’s transition towards manufacturing electronics and electronic products has positioned themselves as a direct competitor to Japan. This has been the greatest East Asian shift in partnerships in recent years. China has made a fortune utilizing their cheap labor to specialize in assembly, meanwhile, most of these assembled products were manufactured in Japan. Much like the US, Japan has been able to sustain a larger middle class due to their specialization in manufacturing of high value-to-weight products. These manufacturing processes require a highly specialized labor force that China has not be able to acquire. Now, with the new wave of robotics, China has been able to compete with Japan by automating many of their manufacturing processes to perfection. This shift from partnership to competition has sparked debate amongst local economies of which partnership they would like to establish going forward. Japan’s only hope to compete with China is if they are able to keep up with their leadership in the semiconductor industry, otherwise, China is likely to have a monopoly on the electronics industry in just a few years.

President Trump has posed as the biggest threat to communist’s geo-economic plans. He has publicly referred to China’s “Belt and Road” initiative as “debt-trap diplomacy” and “predatory economics.” Many of the countries involved have begun to reject some of the new BRI projects due to its crippling loans and economic instability. The Trump Administration has disrupted international trade norms by declaring tariff war on China. Although the Chinese do not approve, they are in support of leveling the playing field for countries doing business with China. In retrospect, a 10 percent tariff has yielded less than a 2 percent decrease on Chinese exports. The United States has maintained their strategic relationship with China for over 200 years. The US claims their policy with China has changed because China has changed.