China financial integration has significantly developed over the past three decades. The total of U.S.-China trade balances grew from $5 billion in 1980 to $409 billion in 2008. Both economies were significantly affected by the global financial crisis and the 2008 balance was reduced by a little over ten percent in 2009. However, the United States is still the world biggest importer of Chinese goods and the Chinese market as represent the third largest importer of U.S. exports. The total amount of trade between these two financial powerhouses is enormous. Furthermore, the Chinese population is already staggering and it is developing economically in historical rates. Thus China also represents a key strategic partnership for the U.S. indefinitely.
However, these trade routes do not come without a fair share of frustration. Since the U.S. imports far more than they export, there is rather large trade deficit that must be dealt with. Also, China's authoritarian government has intermittently chosen which World Trade Organization obligations it wishes to follow and seems to stall or ignore the rest. There have been numerous calls from nations across the global for China to let its exchange rate float as opposed to keeping it fixed. China also has a weak record on enforcing intellectual property rights (IPR), and its extensive use of protectionist policies to promote domestic Chinese firms over foreign companies. Many analysts predict that such trade conditions will continue to erode into the future; however given the extent of economic integration this may prove to be a slow and tedious process at worst.
This analysis will look at the potential for a U.S. company to incorporate Chinese manufactures into its supply chain to serve as a production base. The chosen U.S. industry will be that which consists of small handheld electronic devices i.e. cellular phones, personal organizers, global positioning system (GPS) devices, and other related goods. This strategy has worked well for many of the firm's competitors and the attractiveness of utilizing China's production capabilities seems to grow exponentially. However, at the same time, there is inherent risk associated with such a strategy and the risks identified will also be presented. The concluding recommendation asserts that, under the present circumstances, that such a strategy move should be deferred until economic conditions stabilize.
Chinese Economic Development
In the year 2001, China joined the World Trade Organization (WTO) and Americans gave way to the new "Asian powerhouse" (Rumbaugh and Blancher 2004). China has developed at roughly nine percent a year for more than a quarter decade and is sometimes referred to as the fastest growth rate for an economy in history. With exports rising from 38.8 billion to 196.7 billion (a 400% increase) from 1994 to 2004 to the U.S. alone, this growth curve represents one of the most remarkable financial developments ever. China is responsible for roughly two-thirds of the world's copiers, microwave ovens, DVD players and shoes which are manufactured in China.
With this powerful manufacturing advantage that China has, its promising future does not seem to contain any boundaries. Some have estimated that the size of the Chinese economy will overtake the U.S. economy within a decade. With its 4,000 skyscrapers in the financial capital alone, Shanghai, and the ever rapidly growing economy, China might just do more than simply overtake the United States' economy. They may undoubtedly dictate the direction of world markets. This is the course China seems to be headed for.
The unbeatable Chinese manufacturing industry is due not only to low labor costs but also, by some accounts, to unethical trade practice. According to one article in Newsweek World News a Morgan Stanley report showed that cheap imports from China has saved American consumers more than $600 billion in the past decade (Zakaria 2005). At the same time, this has in turn acted to devastate the domestic production capacities that the U.S. once held. Some view the world's fastest-growing economy and second largest holder of foreign-exchange reserves as a threat while are oblivious to its potential. Many in the U.S. are also realizing that this adds to the domestic unemployment rate (Mankiw 2003). This also adds to the risk of enhanced levels of tension through the political ramifications of millions of unemployed American manufacturing workers.
China's Growing Resource Needs
China has experienced economic growth in the last half century that can only be referred to as historical (Gallagher 2005). With its enormous population and track record of double digit growth, some analysts predict that China could emerge as the world's dominant economy within the next decade; some estimates as early as 2016 (Inocencio 2011). It already accounts for a massive percentage of the world's total manufacturing capabilities and its manufacturing dominance is unlikely to erode anytime in the foreseeable future. Although it would not be accurate to say that the Chinese population on a whole has benefited from this economic prosperity equally, these developments have brought millions of citizens out of extreme poverty and also have led to the development of a large and growing middle class. Some experts predict that the middle class will grow from twenty three percent of the population to forty eight percent within the next ten years (People's Daily 2010).
The Chinese market is one of the most attractive and misunderstood markets in the world from the perspective of developed countries. There have been attempts to break into this market by world class companies that have resulted in disaster because of the staunch cultural divide. One future necessity for the Chinese manufactures to maintain their growth curve will be the importation of key resources; including water (Asia Water Project 2009). China's land holdings are blessed with many natural resources however at the rate of current consumption and demand for various resources it is reasonable to suspect that vast amounts of importation will be necessary to fill its demand.
Since the growing need for raw materials is increasing exponentially, Chinese supply chain will grow increasingly outside of the domestic market. Consequently, this does carry some risk to the sustainability of supply chains that originate in China. If the Chinese rely solely on international firms as suppliers their supply chains will be under their control and thus subsequent to their demands. In order to exert more control over their raw material sources, Chinese firms will have to expand internationally resulting in the potential for increased tension and conflict (Pleven 2010).
Figure 1 - U.S. Stockpiling Race with China (Pleven 2010)
China and Globalization
With China's trajectory into the global markets appearing to be exponentially increasing, the country is often considered as the most vital nation today for both developing and developed countries alike. China manufacturing capabilities are ever increasing and not only can the produce high-quality, low-cost manufacturing but increasingly, high-quality, high-cost manufacturing. Organizations' such as Google and Microsoft have relocated research and development operations close to Tsinghua University in Beijing in hopes of recruiting top students from China's greatest science and technology institutions (Tsinghua University 2011). Despite considerable losses incurred thus far, Microsoft has remained steadfast in regards to funding operations in China, indirectly suggesting their predictions of the future of the Chinese economy.
China to this end has accepted a proactive position in regards to the flattening of the world by allowing competitors from other nations entry into its markets; although still clinging to many protectionist policies. The Chinese have also embraced many of the various types of products as well as the cultural lifestyles they represent. Examples of this are Wal-Mart, Kentucky Fried Chicken, McDonalds, and Domino's Pizza, just to name a few. The country finds itself more connect to more people than ever before through the implementation of cheap broadband and mobile services; though many of these services are still censored.
China has also made a significant investment in domestic infrastructure that also helps connect cultures such as roads, airports and other transportation systems. Education spending within China has received record levels of funding and is often internationally focused. For example, China has more English speaking citizens in its country than does many other countries in the Asian Pacific. They have recognized that education is vitally important for the continued growth of the nation and an international focus is only one method which they are pursuing.
Between China, India, Brazil, and Russia (BRIC), roughly 12% of their collective populations have broadband access, linking some 340 million people. These people have access to many of the same, if not better, resources, education and tools as people in developed countries. The repercussions of this trend are exceptional and it is predicted that in the coming years China will grow from simply a manufacturing base to more of an intellectual bases as well. However, in order to facilitate the economic, social and political transition to accommodate globalization, China…
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