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April 26, 1996
"Despite its Recent Surge, China Remains a Relatively Small Piece of the Global Economy Investing in Beijing"
San Jose Mercury News
By Timothy Taylor
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WHEN America looks at China with our capitalist eyes, we see a billion-plus consumers in a booming economy, with a desire to buy American-made products. But looking at China with our global policeman eyes, we see a superpower that looks increasingly aggressive and obstreperous.

This double vision makes it difficult to focus U.S. diplomacy. Any policy that stands up to China's disregard for human rights at home, or bullying and militarism abroad, creates a risk that China will retaliate against American business, and instead do business with Asian or European producers.

For those who feel paralyzed between geopolitical and economic goals, it is useful to remember that while China's economy offers some lucrative opportunities, so do other nations in other regions of the world.

A few years ago, the U.S. Department of Commerce identified 10 countries as big emerging markets, or BEMs.

China is the biggest of the BEMs, but even so, the size of the Chinese economy should be kept in perspective. Even after its explosive growth in recent years, China's economy is now about $500 billion, as the World Bank calculates its gross domestic product (GDP).

Given the amount of fuss over the importance of penetrating the Chinese market, this number may seem surprisingly small. For comparison, it is about the size of the economy of the state of New York, and only about 60 percent of the economy of California.

According to the Department of Commerce, Asia alone has three other big emerging markets: South Korea, India and Indonesia, with GDPs of $390 billion, $250 billion and $160 billion, respectively. Even ignoring other growing nations of Asia, like Taiwan and Malaysia, these three countries together offer a market considerably larger than China's.

Three more big emerging markets are in Latin America. Mexico, Argentina, and Brazil - with GDPs of $350 billion, $260 billion, and $460 billion, respectively - have a combined economy that is more than twice as large as China's market.

Of the three remaining BEMs, as selected by the Department of Commerce, two are in central Europe and one is in Africa. Poland and Turkey have GDPs of $90 billion and $170 billion, respectively. South Africa has a GDP of $110 billion.

Of course, China's economy has grown explosively since 1980, at an annual rate of 10 percent. But spurts tend to slow down; past growth is no guarantee of future growth.

Many sectors of China's economy remain under the control of aged autocrats. Government officials are often corrupt and greedy. Commercial law is underdeveloped at best, non-existent at worst. The country suffers growing pains from a lack of infrastructure, environmental destruction, and the gaping inequality between rural and urban areas.

If American business is thinking about the markets of the next few decades, rather than the last two, then it's not at all clear that China's prospects for growth are much better than the other big emerging markets in Asia, Latin America, and eastern Europe.

It would be a pity to have an open economic conflict with China; in a trade war, as in a military conflict, economic resources go to waste and ordinary people on both sides suffer. But it's also important that a newly aggressive China not develop a bloated belief in its own economic invulnerability and importance.

Instead of agonizing so continually and openly over the importance of the Chinese market, which only tends to make the Chinese government feel that it can get away with bad behavior, it might be useful if America's diplomats spent the next year or two being tough with China on human rights and geopolitical concerns, and quietly ignoring any threats to cut U.S. business out of China's economy.

Rather than threatening China, this strategy would involve pointedly shining a spotlight on the other places where American business can find opportunities for fast growth and expanding markets. If such an approach were adopted, it wouldn't take long for China to get the message.

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