Introduction

China is threatening to usurp the position of the United States as the global leader in wealth. Will the United States remain wealthy and strong, or will the United States be financially weakened by China?

This book analyzes why the United States is in a downward financial spiral while China is in an upward financial spiral, one that will decimate the U.S. economy and lifestyle if changes aren’t made. At the end of the book, I offer a restructuring plan to help Americans redirect our country back on the road to an equilibrium with China, so that the two countries can continue to work together rather than separately and in a state of economic tension.

My first real exposure to China and Chinese leaders was in Dallas, Texas, in the early 1980s. At that time, I was a vice president of strategic planning and engineering of a large multinational electronics company, and I was invited to give a speech about the future of data communications technologies. After the presentation, I had lunch with the former president of the People’s Republic of China, Jiang Zemin, who at that time was the minister of electronic industries. We had a detailed conversation about the outlook for new electronics technologies.

A few months later, I was invited to give a talk in Beijing on the future of the communications industry. I accepted, but I could not attend because the U.S. government requested that I not visit China for security reasons. Naturally, I was disappointed, but I started to develop a deep curiosity regarding China.

In the late 1980s, I launched a market research and consulting company called International Business Strategies (IBS). We provide in-depth market and technology analyses of many electronics industry sectors, for a wide variety of American, European, and Asian clients. As our firm’s interest in China grew, I read extensively on China. However, my reading produced only a limited knowledge of the country. To gain a deeper understanding, I would have to have face-to-face interactions with people in China and Asia.

So beginning in the early 1990s, I began to visit China and Taiwan and other countries in Asia. Over the next 15 years, I would make at least 8 trips a year to Asia–in 2008, I made 10 trips to China–learning firsthand as much as I could about Chinese companies and their relationships with Japanese, South Korean, Singaporean, and other Asian companies.

The original idea for this book came from driving through the Pudong industrial zone in Shanghai in late 2008. I wondered how it was possible to take a marsh and build on it within a short time the tall office complexes and hotels and the hundreds of factories that I was seeing.

I could also see as I drove through the area that, while the new development was extensive, behind the new buildings there were rundown structures and squalor. I wanted to understand which was the real China: the glowing new buildings or the drab old ones? Was the country like a Hollywood studio lot where there was nothing behind the façades of the new buildings? Was industrialized China just a big Potemkin village?

Or was China, as its people have been proud to describe it, really a phoenix rising from the ashes? Indeed, a year later, many of the old buildings I had seen in Pudong were gone, replaced by new buildings. It was, and still is, a tidal wave of progress.

I quickly learned that there was energy there and that the business leaders were confident of the future. But was their energy and confidence an illusion, or was it real? And what did was it mean for the global industrial environment?

Over time I was able to find answers to many of those questions.

Inside Chinese Factories

While there is a human and entrepreneurial side to China, the industrial side of China is a big machine that runs 24 hours a day, seven days a week, and 50 weeks a year. The factories close only during the Chinese New Year and the National Day holidays. The machine takes in large amounts of people, materials, and components, and it turns out a wide array of finished products.

The factories can be the size of multiple football fields, and entire communities have been razed to provide the space needed to build them. Since the government owns the land, it can be easy for the government to decide that an industrial zone should be established where there were once homes or farms.

I have seen many factories in the United States, Japan, Germany, South Korea, Taiwan, India, and other countries. The factories of China are extremely impressive, especially since most have been established only in the past 10 years.

Deeper in the Country

Beijing is different from Shanghai because of a deeper history. Visiting the Forbidden City, there is a feeling that one is very small. The capital city exudes power. (In contrast, Shanghai, in the south, projects the image of urban sophistication.) As one goes deeper and deeper into the Forbidden City, one can only wonder what drove this kind of architecture. Was it that the Chinese liked to build walls within walls so that it would take a big effort to get to the core? Was it a defensive strategy to erect gate after gate?

The gates and walls of the Forbidden City seem to express the feeling one gets in China: an outside that has to be penetrated, and when one gets inside, there is another gate to be crossed. And as one gets deeper inside, the steps leading up to the gates become higher.

The more I traveled in China, the more I learned and the more I wanted to understand what was driving the people to achieve their spectacular growth. I wanted to understand more of China than one gets from visiting modern urban shops and eating meals in hotels.

Clearly, I had to research the history of China, but this was not easy. China has a history that goes back 5,000 years, and what has been written is conditioned by what “should” be written. Only what was politically correct was included in many of the history books written by the Chinese.

Indeed, the Chinese in many cases say only what they think should be said. The Chinese are very proud of China, and they do not want foreigners to think badly of it. The Chinese also have a deep initial distrust of foreigners, a distrust that usually goes away gradually after many “gates” are traversed.

During the past 10 years, I have become involved with a number of Chinese businesses as a strategic consultant and market analyst. While the senior-level managers of the Chinese companies have been willing to work hard and have been highly committed to succeed, their level of management sophistication has been low. However, their energy and commitment have been strong, and they are willing to endure a lot of pain to achieve gain.

Understanding business in China was an intriguing challenge for me after three decades of doing business in Japan, Taiwan, South Korea, France, Germany, Sweden, India, and Russia. I wanted to understand where the industrialization activities would take China and what its growth meant for the United States. Was the Chinese market a big opportunity for the U.S. companies that were my clients? How could companies do business in China?

The rise of China reminded me of the rise of Japan three decades ago. I began traveling to Japan in 1979 and experienced at close proximity the rise of Japan, as well as its subsequent decline. My analysis indicates that China will not experience the same steep downward trajectory as Japan. The growth of China will continue for decades.

What Are They Really Thinking?

In the many meetings I have had with top leaders of Chinese companies and government officials, it was clear that they were not being transparent in what they were saying or what they were deciding. Leaders were strongly committed to establishing businesses that would provide employment, but getting to the Chinese consumers would not be easy. Gate after gate would have to be opened, and there was no assurance that the next gate would lead to any significant business.

Under the friendly façade, there is an element of steel. As I have worked with them, it has become clear that the leaders in China are determined not to repeat past mistakes and allow foreigners to dictate their future.

With deeper exposure into the country and greater familiarity with its middle class and its leaders, it became clear to me that China is on a mission. There is strong top-level leadership to guide the economy. It is clear that senior leaders view their people as assets to be used or discarded. The people of China are viewed by their leaders as a river that flows into the sea. If the water is not used as it passes by, its value will be lost.

During my research, I realized that, as China strengthens, it can have a big negative impact on the United States. While one branch of my research was to learn more about China as representing a very large potential market for U.S. products, when I have been in China, I have not seen or bought any products that were made in the United States. But when I have returned to the United States, almost everything from clothes to electronics has been made in China.

Chinese companies are very skilled at making copies of products. A simple product can be copied overnight and can be in the market the next day with the same name as the original product. It is survival of the lowest cost and most nimble. There is no respect for the original inventor, only the one who can make it the cheapest.

Over time I started to become concerned. The United States was importing oil from many countries, automobiles from Japan and Germany, and thousands of different products from China. What was the United States exporting? Movies? Boeing aircraft? Beef? Would these cover the costs of the imports?

As my research progressed, the picture regarding the United States and China became very bleak. Projecting future trends showed a clear dichotomy: China was ascending, and the United States was descending. While this was not an original idea, I still wanted to understand what this meant for the future of the United States.

I also know that the devil is in the details, and I wanted to understand more. It has taken many journeys to understand what is going on in China. This book details many of the conclusions of my scores of trips to China over the past 20 years.

Some Personal Notes

I have been shown generosity and kindness in China in situations that have been completely unexpected. I have been given free food from people I hardly know and have been told that they would be insulted if I paid.

And I have been cheated and continue to be cheated when I visit China. In China there is an attitude that it is a sign of strength to get the upper hand in a negotiation with foreigners. This attitude is not only about making profits; it is also about being morally good. The prevailing thinking now is that if foreigners are so stupid that they do not know the prices of goods, they deserve to be cheated.

The attitude of urban citizens in the markets in China is remarkable for a country that was tightly in the embrace of communism only 40 years ago. The sellers of copied goods on Nanjing Road in Shanghai told me once that if they paid 10 renminbi (the new name for Chinese currency, replacing the yuan) for an item, their goal was to get 100 renminbi. In many cases, they were able to get 150 to 200 renminbi. No wonder they are persistent in trying to get foreigners to look at their goods in the backstreet stores.

During my visits to China, while meeting with many of its industrial leaders and political figures, I showed curiosity, but I did not give any indication that I was planning a book on China. I wanted their unguarded input, at least at the level that is possible in China, to gain some visibility into their inner thoughts.

What I saw is a growing strength as the country emerges as a modern industrial superpower. In the past, China was like a single bamboo stick that could be bent but not easily broken. Today, China is like a number of bamboo sticks tied together–difficult to bend and almost impossible to break.

Whether China stays together as the bound bamboo sticks will determine how well China competes for global wealth. While the individual sticks are strong, there is also extensive corruption in China, which weakens the bonding of the bamboo sticks.

Why I Wrote This Book

The United States is my home, and I have deep gratitude for what the United States has given me. My children were born here, as were my grandchildren. And I am very worried about the future for my grandchildren.

The United States has become too complacent and conditioned to enjoying wealth without creating wealth. The internal efficiency of the United States is declining, which reduces its ability to compete for global wealth.

The ideal situation is that wealth can be shared, but the reality is that people and nations compete for wealth. China and the United States are in direct competition for the generation of wealth.

I wrote this book because I want to share my understanding of China and also because I want to give the United States a wake-up call. Although we are starting to become more concerned than we have been in the past with the government’s deficits and our increased dependence on imports, we are in serious trouble, and we are clearly not ready to take the hard actions required to reverse the downward spiral. Societies, such as Rome, have weakened because of their internal inefficiencies, which ultimately allowed an external force or enemy to inflict a fatal blow.

China is not likely to threaten the United States militarily, but China is in direct competition with the United States for global wealth. China is a friend to a strong United States, but China is a threat to a weak United States. It is up to us in the United States to control our destiny. Time is, however, the enemy because the longer we wait, the deeper is the hole that we are digging for ourselves.

I hope this book allows us to understand China and see where we need to take actions to become a long-term partner to China rather than being the victim of our own overconsumption. We need to become ChinAmerica, a collaboration for sharing our wealth in an equitable way.

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