What Happens Next in China and the United States

Chinamerica The Uneasy Partnership that Will Change the World

The next step in China’s economic growth will come from the ongoing and careful courtship of Taiwan. China absorbed Hong Kong and Macao without any major economic and cultural disruptions. While there was a decline in property values in Hong Kong in the late 1990s when it was absorbed into the People’s Republic of China, property values now are comparable or higher than when it was annexed. The reunification with Taiwan has been a more delicate courtship. It is being done in many small steps, such as permitting direct flights between the two. These flights have stimulated tourism between Taiwan and mainland China.

Taiwan and China are also promoting closer relationships between their companies. The business bonding and access to the Chinese market for Taiwanese corporations is a major incentive for reunification. China needs to progress toward the goal of reunification while ensuring that Taiwan continues to be successful in electronics and other fields. Taiwanese companies can be very strong partners for Chinese companies if the appropriate financial incentives are in place.

The Chinese government has allocated $19 billion 1 to encourage Taiwanese companies to establish manufacturing facilities and set up businesses in China. A number of Taiwanese companies, such as Acer in laptops and the Taiwan Semiconductor Manufacturing Company (TSMC), have already developed successful operations in China. In addition, the Taiwanese contract manufacturers such as Hon Hai have already established large manufacturing facilities in China, with Hon Hai alone employing over half a million people. The contract manufacturers have the ability to compete in global markets. This initiative can provide China with access to technologies and management expertise from Taiwan as well as strengthening the economic ties between the two countries. As the Chinese electronics market grows, Taiwanese companies will be well positioned to take advantage of these growth opportunities.

The process poses some risks, however. If China does not continue to make progress with reunification, then the leadership in China will be viewed as weak and it will lose face. Yet a too-hasty takeover of Taiwan could cause China to lose momentum in its own industrialization, especially in the electronics industry.

There is strong resistance to reunification by a large number of people in Taiwan, and it is unlikely that this resistance will be completely placated. There would be a loss of face for China if the reunification were postponed indefinitely. On the other hand, China can’t be too aggressive if it wants its working relationship with Taiwan to progress. The reunification will require finesse and adroit financial incentives to be smooth and seamless. As I explain in Chapter 11, the reunification will test the diplomatic skill of China’s top leadership.

But the task of China’s reunifying with Taiwan is relatively easy compared to the challenges faced by the political and business leaders in the United States. In Chapter 12, I describe a restructuring plan for the United States. Like most business restructuring plans, the recommended changes aren’t easy to implement. The key ingredients include a recognition that there is a major problem-itself politically unpalatable to elected officials who want to remain in office-and a list of specific actions that need to be taken.

While many of the recommendations have been discussed for years in the United States, a lack of political will and leadership has prevented substantive action. As we’ve already seen, the rise of the Chinese economy and manufacturing engine considered in light of the almost simultaneous decline in U.S. competitiveness should shift the restructuring discussion to the top of the United States’ agenda.

Source: Handel Jones, “ChinAmerica: The Uneasy Partnership that Will Change the World,” McGraw-Hill, 2010

Republished by Kajian Internasional Strategis


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