Editor's Page -- China's Challenge Redux

Aug. 15, 2005
Coming soon: the Chinese advanced technology superstate.

It's time for U.S. public policy to catch up with Chinese economic, technological and military advances, and U.S. manufacturing executives need to exert some old-fashioned corporate statesmanship to get the process moving. Until all the facts are known and the policy clarified, manufacturers will be forced to make decisions amidst needless uncertainty. Besides, the timidity that characterizes the U.S.'s current political and business relations with China -- especially during the recent furor over CNOOC's takeover bid of Unocal -- is unbecoming of a superpower.

When the China National Offshore Oil Corp. made its aggressive takeover bid for Unocal Corp. in June, the Bush administration and -- we must admit -- all of us were caught flat-footed. The administration, facing an array of politically unpalatable responses, stalled. Bereft of leadership and having taken a beating from constituents about China's unfair trade practices, the House of Representatives cited national security concerns and opposed the proposed deal 398 to 15.

Business and other public policy leaders debated, defending positions calling for the sale to be allowed or to be blocked. Some were uneasy at the thought of a communist-government-owned company capturing a small but strategically important oil and gas concern. Others derided all the fuss, declaring that the market should decide. Nearly everyone compared the concerns (some would say "hysteria") to those about Japan's rise in the early 1980s.

But we're not experiencing dj vu. China now is very different from Japan then, and the situation demands a new, well-thought-out, clearly stated policy. Though the Bush administration wasn't forced to show its hand this time, thanks to CNOOC's withdrawal of the bid, Chinese companies, backed by a government flush with cash, soon will be back. CNOOC's bid, along with Lenovo's purchase of IBM's personal computer business and several other Chinese companies' offers to buy venerable U.S. brands -- Haier for Maytag, for example -- demonstrate China's readiness to take the next step toward a fully developed and innovative economy.

The Chinese government is pushing its domestic companies to establish global brands and to do so by acquisition. Soon thereafter, we can expect China to emerge as an advanced technology superstate -- flexing its economic, political and military might on equal footing with the U.S. and the European Union, according to work done by Ernest H. Preeg for Manufacturers Alliance/MAPI, an Arlington, Va.-based business research and public policy organization. In "The Emerging Chinese Advanced Technology Superstate," published this summer, Preeg tracks the trajectory of China's rise over the past two decades and makes a compelling case that it will achieve advanced-technology-superstate status by 2015. The book presents a concise analysis of the data, and it offers some of the most exhaustively supported specific policy proposals that I've seen to date.

There's no need for panic. We're well aware that China's manufacturing economy, though fast growing, remains relatively small compared to the U.S. manufacturing sector. We've watched as U.S. manufacturers have benefited enormously from its growth and know they will continue to do so. The U.S. manufacturing sector is the most flexible, dynamic and innovative business sector in the world economy and can adapt to new challenges. However, the CNOOC affair exposed that U.S. public policy is unprepared to plan for a future with China as a peer, and Preeg's analysis provides ample evidence that speed is of the essence.

Patricia Panchak is IW's editor-in-chief. She is based in Cleveland.

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