While U.S. Economy Struggles, China's Rises

Heard on Morning Edition

November 16, 2009 - RENEE MONTAGNE, host:

President Obama is in China at a time when the world's two most powerful economies face very different fortunes. A humbled United States is slowly recovering after its downturn sparked the global financial crisis. China, on the other hand, has handled the downturn with much less turmoil. It appears to be leading the world out of recession while increasing its influence in Asia. But many Chinese say their economy has a long way to go, and America still has some big advantages. NPRs Frank Langfitt reports.

FRANK LANGFITT: When President Nixon went to China in 1972, there was no sign the country would one day become an economic superpower. Chinese leaders insisted they didn't need American products and they didn't want to make them, either.

Gene Theroux traveled to China back then as special council to a congressional economic committee. He recalled General Electric executives pressing the Chinese to consider GE products at a trade fair.

Mr. GENE THEROUX (Former Special Council to a Congressional Economic Committee): If they tried to leave an electric fan on a table and said, just take a look at it and let us know if youd like to make it, it was returned to them, even if Chinese officials had to chase them down a hallway to return it. They were not interested in manufacturing anything that would carry a brand name of an American company.

LANGFITT: China got over that. In 1992, Deng Xiaoping flung open the doors to foreign investment. Since then, the Chinese have sold so many of those products back to Americans that China now has more than $2 trillion in foreign currency reserves, more than any other country. Depending on the estimate, China is now either the second or third-largest economy in the world.

During the financial crisis, China has used some of its fortune to prop up its economy with stimulus spending. Yih-Chyi Chuang is an economics professor at Taiwan's National Politics University. He says China has also provided nearly $30 billion in aid to other countries.

Professor YIH-CHYI CHUANG (Economics, National Politics University): They announced that they can offer (unintelligible) of the funds to help their neighbors. And who can do that except China at this critical point?

LANGFITT: Economically speaking, which countrys more important now in Asia: China or the United States?

Prof. YIH-CHYI: OK. Apparently, China.

LANGFITT: China's rise is even influencing relations between American employers and Chinese workers. James McGregor is a U.S. businessman whos lived in Beijing for two decades. Hes also the author of the business book, One Billion Customers. In their brief lives, young, urban Chinese have only known prosperity. And McGregor says they aren't so impressed by working for an American company anymore.

Mr. JAMES MCGREGOR (Author, One Billion Customers): I used to hire people, and they would come and they would say, I will work for free and I will work day and night and I will prove myself. And now they're coming in like American kids, saying, what's your vacation policy, and how quickly do I have a title and my own office?

LANGFITT: You can find that same confidence today in the shopping malls of Shanghai and Beijing, where theres no evidence of last year's crisis.

Its 7:30 on a Saturday night, and Im strolling through Shin Kong Place. This is one of Beijings big luxury malls. Tonight, its packed. Shin Kong has all the top brands - Burberry, Tag, Chanel, Fendi, Prada and Coach. And tonight, if you look around, people arent just window shopping. Theyve got bags under their arms. Theyre spending some serious money.

I run into Li Wenjie. Hes a burly man in a sweater, carrying shopping bags from Gucci and Chanel. I ask him what he bought.

Mr. LI WENJIE: (Through translator) A silk scarf, socks and underwear. It's relatively expensive - nearly $600.

LANGFITT: Li works in the telecom business. He says his company has done well laying fiber-optic cable as part of the government's massive stimulus program. I asked if the recession in America has affected his life here.

Mr. LI: (Through translator) There's been no influence. There was probably some impact on foreign trade, but there was no problem domestically. I have a lot of confidence in the economy.

LANGFITT: Zhao Ziying is on her way out of a Prada store. Shes from Hong Kong, and shes picking up a blue $600 Prada bag she can't find back home. Zhao says mainlanders are flooding Hong Kong with money.

Ms. ZHAO ZIYING: The Chinese people, they come and buy everything, even apartments. You know, have you heard? Seventy thousand Hong Kong dollars per square foot. Unimaginable.

LANGFITT: That's 9,000 U.S. dollars a square foot. But Zhao is skeptical about all that spending.

Do you know where all the moneys coming from?

Ms. ZHAO: From the government.

LANGFITT: Stimulus?

Ms. ZHAO: Yeah.

(Soundbite of laughter)

Ms. ZHAO: I think so. Otherwise, well, they must have a printing machine at home printing money.

(Soundbite of laughter)

Mr. ANDY XIE (Economist): Its a bubble.

LANGFITT: Thats Andy Xie. He was an economist with Morgan Stanley and has a popular blog. The government has poured billions of dollars into the mortgage market. Xie says that has sent prices skyrocketing, making the economy look better than it really is. In fact, exports - which make up roughly a third of China's gross domestic product - plunged after the United States went into recession. Xie says wealthy Chinese are now spending at luxury malls based on paper profits.

Mr. XIE: The issue is that how sustainable this property boom is. Now, if you throw more money at a bubble, it does become larger in the short term and helps the economy. But if it bursts, it can bring disaster, as we have seen, we're witnessing now in the U.S.

LANGFITT: The last year has shaken Americans' confidence, and many fear China's economy will overtake and eventually dominate the United States.

Professor YI XIANRONG (Economics, Chinese Academy of Social Sciences): (Through translator) Americans dont have to worry at all. China has developed fast because its such a low base.

LANGFITT: Thats Yi Xianrong. Hes an economics professor at the Chinese Academy of Social Sciences, a government think-tank. Yi says Americans need to see the Chinese economy in context. Even if it becomes bigger than America's -as most analysts expect - many Chinese will still be relatively poor.

For instance, the per capita income in America is more than $40,000. In China, its around $3,200. And in much of the rural part of the country, people still scratch out a meager life from the earth.

Prof. YI: (Through translator) You have to go to the west to see how poor people are there. Sixty years after the Chinese revolution, people's life there would make you cry.

LANGFITT: In some ways, the scene I described in that Beijing luxury mall is as dazzling as it is unrepresentative. And for Americans anxious about their country's future, Yi has a bit of a pep talk. He says the United States has several advantages that can't be underestimated.

Prof. YI: (Through translator) Why is America's economy so good? America has core qualities stronger than other countries. The first is education. The world's best universities are in America. The second is because you have such a good educational system, you have the best high-tech talent. And, number three, you have a good political system: democracy. Once you have a problem, you have a system that helps solve it quickly.

LANGFITT: Like most Chinese, Yi is optimistic about China's economy in the long run. As for those three critical American advantages, well, Yi says, China simply doesnt have them.

Frank Langfitt, NPR News.

MONTAGNE: This is NPR News.

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