Riad A. Ajami

The Chinese Are Coming

Chinese multinationals’ growth strategies should be seen within the framework of growth options similar to that of other U.S. and Organization for Economic Co-operation and Development (OECD) multinational growth strategies. OECD and U.S. multinationals have dominated Fortune’s lists of global multinational corporate giants during the last three decades. In the car industry, General Motors (GM) was a permanent fixture among the leading corporate giants, and the same can be said of U.S. financial institutions and other firms such as Coke and Ford. This was the global landscape from the 1950s until the 1980s. During the last three decades, American firms seeking lower wages in labor-intensive activities established direct foreign investments in China. Chinese firms, lacking the knowledge and capabilities, were content to operate in China. Throughout the last two decades, and particularly, the last 10 years, Chinese direct foreign investments into the U.S. market increased significantly, and now Chinese investments into OECD economies, including the United States, exceed U.S. and OECD investments into China. This situation has generated a sense of déjà vu. It is similar to the situation during the 1970s and 1980s. In this time period, Japanese multinationals and Japanese direct foreign investment began to challenge U.S. and European multinationals. Starting in the 1980s, Toyota and Nissan became major players in the car industry and started to challenge the dominance of GM and Ford, among others. The cry was, during the 1970s and 1980s, “The Japanese are coming!” Japanese multinational corporate investments across a number of industries became dominant. Today, Asian investments, particularly those of the Chinese, represent a replay similar to that of Japanese companies’ direct foreign investments in the United States. Chinese direct foreign investments should be analyzed and interpreted similarly to that of American, European, and Japanese direct foreign investment. Export entry strategies are the first phase of conducting international business to be followed by licensing, franchising,

Outsourcing: Which Way Forward? An Essay

ABSTRACT This article looks at the link between the need for the pursuit of cost advantages via labor arbitrage on one hand, and the need for continued learning and sustainable competitive advantage on the other. We first define outsourcing and off-shoring and then provide a review of the primary elements of the first wave of outsourcing. We then turn to discussing some proactive mechanisms that national governments should consider to counter the short-term impacts concomitant with the first wave of outsourcing of jobs offshore. Finally, we discuss the next steps that firms need to consider in the ever-changing landscape of international competition.

Asia-Pacific Economies: Beyond Seoul

In 1421: The Year China Discovered America, Gavin Menzies (2003) suggested that Chinese ships circumnavigated the globe well before the Europeans. Today China’s sea-centric strategy to reach economically across the Pacific as well as to Europe and the oil-producing states is equally powerful, more significant, and more likely to shape the relationship between America, other Organization for Economic Co-operation and Development (OECD) countries, and itself. Seoul, South Korea, has just hosted the G20 leaders. The main emphasis of discussions during this meeting focused on Chinese trade and currency values and the competitiveness of U.S. manufactured products, as well as the ability to sell these manufactured goods in Asia, particularly China. The Chinese are currently running a trade surplus with the United States, while running a trade deficit with other Asian economies and the rest of the world. South Korea is one the few Asian countries running a trade surplus with China. However, many of its exports are semimanufactured products and goods that end up being refinished and reassembled in Chinese factories, and then reexported to the United States. The Chinese economy’s impressive growth over the last four decades has been predicated upon this reexport of manufactured goods to the United States and other OECD economies. Partially responsible for this impressive growth is value of the yuan in relationship to other currencies. China stands accused of artificially lowering its currency to increase its exports and maintain its current trajectory of economic growth. President Obama has faced criticisms at Seoul of his economic views and, in particular, the United States’ position of quantitative easing [QE]. China, Britain, Germany, and Brazil among others have spoken against QE and have accused the United States of exporting its economic difficulties abroad. U.S. congressional critique of Chinese economic policy revolves around the artificial lowering of the value of Chinese currency. Moreover, President Obama’s reference to trade imbalances during the Seoul meeting indicates that we are moving toward a conflicted worldview.

The Poverty Curtain Revisited: Reflections on the Doha Development Agenda

ABSTRACT This review article makes a contribution to the discussion of economic development especially as it concerns reasons for the currently stalled trade talks of the Doha Development Agenda of the World Trade Organization. This reviews predictions made by Dr. Mahbub ul Haq 30 years ago in a book titled The Poverty Curtain (1976), and by analyzing this work in conjunction with events that have transpired since its original publication, it clarifies areas of progress for the global economy, as well as areas that are still in need of an improvement. The first part of the analysis will discuss why gross domestic product (GDP) is not a panacea in terms of development. The second part of the review discusses the need for an international “new deal,” something that was stressed 30 years ago, and is still applicable today.

The Middle-Income Trap: Implications for the Chinese Economy

A March gathering in China, organized by the China Development Forum, brought together leading global economic and business experts, as well as leading Chinese party members and technocrats. There was a consensus that China is in the midst of a middle-income trap, where further high economic growth is likely to slow; economic growth exceeding 10% annually, commonplace during the last three decades, will be history. A more realistic gross domestic product (GDP) annual growth rate of 6% to 8% is likely to be the norm for the Chinese economy. Global external conditions, as well as the internal dynamics of the Chinese economy, will be the cause. Internally, the government-led capital investment schemes in infrastructure are slowing down. Second, an inexhaustible labor supply coming from rural communities is quickly shrinking. The social urbanization of this movement is leading to air pollution and a lower quality of life. Third, a potential real estate bubble is about to burst. This could lead to shrinkages in the liquidity of a growing elite of upper-income earners, thus creating a potential crisis of confidence. Finally, there is an overcapacity in the industrial sector, whereby a shrinkage of output is unavoidable due to slowing demands for Chinese exports in Europe and other export destinations. Thus, the industrial sector’s contribution to GDP growth will likely diminish, but a growing service sector has yet to manifest competitive advantages similar to that of the industrial sector. The confluence of these factors, and the growing tension between the global multinational corporate sector and Chinese government authorities, is likely to further cloud the earlier growth encountered during the last three decades. A transition within the Chinese economy is afoot. The stress of managing a slower-growing Chinese economy is likely to demand economic policies that may not be readily available. Furthermore, managing this deceleration is likely to be more difficult than allowing high economic

Global Realignment: The Arrival of Asia's Economic Giants

After decades of high economic growth rates ranging from 8% to 14% annually, China has just arrived to replace Japan as the second-largest global economy. China has also overtaken Germany, France, and Great Britain and is forecasted to grow to be the world’s biggest economy, surpassing the United States, by the year 2030. The U.S. gross domestic product (GDP) is estimated to be more than

China’s Global Reach: Prospects and Challenges

14 billion during early 2010. By comparison, Japan’s annual GDP for 2010 is estimated to be greater than

The Tale of Three Cities—Da Nang, Nanjing, and Washington: Titanic Economic Shifts Across Asia-Pacific Economies

5 trillion, and China is likely to surpass that number to reach

Maturity in Asian Economic Growth: A New Normal

5.5 trillion in 2010. China’s inroads into the global economy have made it the largest auto market and have allowed the Chinese to surpass Germany as the world’s largest exporter. Moreover, Chinese demand for commodities such as iron, copper, and crude oil have made them the world’s largest importer of these products. Furthermore, as reported in the Financial Times on January 4th of this year, PricewaterhouseCoopers acknowledges that China is likely to become the biggest Initial Public Offering financial market in 2010. Within Asia, China is becoming the largest trading partner for most emerging Asian economies, including Vietnam among others. Major global multinational firms from the U.S. and other Organisation for Economic Co-operation and Development economies such as Siemens, GE, Caterpillar, and Motorola have taken note of China’s double-digit growth and are aggressively pushing to move into the Chinese market, moving beyond production to establish research and development centers. Still, the growth of the Chinese economy, however significant or large, has yet to filter down and reach its citizenry. China’s per capita income, estimated at

Geo-Economic Trends and Challenges Within and Across the Leading Asia-Pacific Economies

3,700 in 2009, is similar to that of many impoverished nations like Albania and El Salvador. This is miniscule when compared to a U.S. per capita income of more than