The Rise of China and the Future of the West

China’s continuing ascendancy is changing the world’s balance of power. Not only is China the world’s largest country, but they are rapidly climbing the ranks of energy consumers and of economies. In fact, China has just overtaken Japan to become the world’s second largest economy and could overtake the US to become the world’s largest economy in 2027.

A number of different factors have fueled China’s rapid growth. The Chinese government has made economic expansion a priority and has created, in many ways, a corporate utopia. The large population and focused educational system has produced a large pool of talented workers, as demonstrated by Apple’s ability to source 8.700 industrial engineers in just 15 days. This task would have taken at least 9 months in the United States.

The large labor force has conspired to keep labor costs extremely low in China

The large labor force allows companies to hire relatively skilled workers for pennies on the dollar of what they would cost domestically. The relative lack of regulation also makes it very affordable to employ workers especially when compared with the regulation-choked American economy. The lack of regulation also makes many processes, such as chemical manufacturing, especially easy to do in China. It has also led to China being home to 16 of the world’s 20 most polluted cities.

Many of China’s advantages are also what will hold it back from maintaining its current rate of growth, though. The low labor costs are already beginning to change. Chinese minimum wages keep increasing and bad press stemming from the rash of suicides at Foxconn City is beginning to change the relationship between workers and employees and increase labor costs. In addition, the Chinese government is attempting to grow domestic consumption, which is another process that will lead to wage increases. While this will not end China’s role as a manufacturing center it will shift the nature of some of the growth.

China’s unique legal environment is also a challenge

As Chinese workers become wealthier, they will demand better working conditions and a cleaner country. Implementing these changes will change the economics of producing in China and move them closer to cost parity with other advanced countries. In addition, the lack of regulation in China has led to significant issues with product quality. Chinese toy exports containing toxic lead paint and Chinese pet food exports containing poisonous melamine instead of nutritious protein have made global consumers aware of the risks inherent in doing business in a country with little regulation and with a limited tort and civil liability system.

Thanks to these issues, the American job is not dead. Every domestic payroll company will not be closing, and every American worker will not be permanently unemployed. In many ways, the entree of China into the world’s production mix has had a significantly positive impact on quality of life by making luxury goods available at lower prices than ever. As we further understand China’s role in the global economy, and as China’s economy better matches the standards of the global economy, equilibrium will be reached. This equilibrium has the potential to make everyone’s life easier and richer.