- The Washington Times - Thursday, April 12, 2007

China surpassed the United States as the world’s second-largest exporter last year and now makes more cars than Detroit, among the latest signs that the Asian giant is rapidly ascending to what many analysts expect will be the world’s largest and most influential economy as soon as a decade from now.

The road of China’s ascent has been paved with exports of a broad range of goods from cars to computers and toys sent to countries around the world, with the U.S. being its top export market. But China’s huge population of 1.3 billion also promises to become the world’s biggest consumer market, and it already is sucking in imports and shaping world markets for commodities like oil and copper.

“The mainland has emerged as an exporting powerhouse, with the ‘Made in China’ label now the most ubiquitous in the world,” said Joseph Quinlan, chief market strategist at Bank of America. He noted that about half the products China exports are the goods of Western companies that are assembled in China to take advantage of inexpensive labor there.

“Think of a Nokia cellular phone sold in the United States but made in China. The profit from this sale accrues to the parent company in Finland,” he said.

China’s surge last year into the top automaking slot, manufacturing 5.2 million passenger cars, or 20 percent more than Detroit, highlights another aspect of China’s economy: that of low-cost producer for the developing world. China’s cars, with sticker prices around $4,000, are big sellers not only in mainland China where salaries are far lower than the U.S., but also in Third World regions like Africa.

China’s rapid growth, averaging about 10 percent a year, combined with a large and increasingly affluent population, is expected to vault it into economic superpower status within years or decades, economists say. A recent study published by the International Studies Review predicts that China will leverage its size with superior education and technology to surpass the U.S. and become the world’s predominant economic power by midcentury.

“China today is much more capitalist than the U.S.,” said John Rutledge, a former Reagan economic adviser who now advises China. Competition in China is robust to the point of cut-throat, and surveys show that nearly three-quarters of Chinese think that the free market is the best economic system — a higher percentage than in the U.S.

“The big words in China are entrepreneurship and innovation,” Mr. Rutledge said. Everyone from the humblest workers on factory assembly lines to top managers and government officials have been reaping rapidly growing incomes and profiting from China’s engagement with Western market economies.

China’s economic success — second only to Germany in exports, according to a World Trade Organization report yesterday — also owes much to the model of an economy built on exports, which was pioneered by Japan and adopted throughout Asia in recent decades. China added a twist to the model by inviting Western companies to make the country into a platform for exporting their products back to the U.S. and other Western consuming nations.

To make all the electronics, furniture, shoes, clothes and other products it exports, China must voraciously import raw materials from wood to cotton and nickel — making it a major contributor to growth for countries like Canada, Australia, Brazil and Russia that are major commodity exporters. The synergy created by China’s economy has been an important impetus to global growth in this decade.

“Import demand is so strong that China has become the world’s third-largest importer, trailing Germany and the United States,” Mr. Quinlan said. “China is a significant source of both global supply and demand.”

China’s enormous appetite for oil and its extensive manufacturing network also have given the country the dubious distinction of being the world’s second-biggest energy consumer and producer of greenhouse-gas emissions, behind the U.S. Projections show China could supplant the U.S. to become the biggest greenhouse-gas producer as soon as this year.

With exports growing nearly 30 percent a year, China also has amassed the world’s largest treasure chest of foreign-exchange reserves — estimated at $1 trillion — much of which is saved and recycled back into the U.S. through purchases of U.S. Treasuries and other debt securities.

That makes capital or cash China’s largest export to the U.S. But while the process of reinvestment helps keep the dollar strong, it prevents China’s currency from appreciating as it otherwise would and has led to charges in the U.S. that it amounts to an unfair trading practice.

Partly because of that criticism, China recently announced it would start diversifying its investments more out of the dollar by creating an independent fund to invest nearly $200 billion a year in a variety of high-yielding projects.

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