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China's growth has long since been an organism that feeds on the back of the gorilla of US growth. If the US economy would hit a major recession, China would co

by kirse 12y ago

China's growth has long since been an organism that feeds on the back of the gorilla of US growth. If the US economy would hit a major recession, China would come crashing down with it. On the other hand, if the Chinese economy would have a major collapse, the US would suffer, but still be able to re-route core-value manufacturing processes to new countries (or back home). I agree with your cheating note, many of the Chinese take great pride in stealing innovation and ripping off US intellectual property, to the point where anyone well-informed on the matter knows that they have their fingers in the networks of almost every major US Corporation, siphoning away hard-earned gains by our workers. I have further exposure to this through product manufacturing, where Chinese companies are well-known for ripping off blueprints from the US companies that outsource their manufacturing. Tools like Alibaba have only increased this sort of misbehavior exponentially. What the US has that China often doesn't demonstrate are the intangibles in regards to honest work-ethic that produce genuine "value", rather than "value" based on a manipulated currency and outright lazy copy-catting. Once they demonstrate their self-sufficiency by doing honest innovation, then I'll credit them for a job well done. There's a lot of value in US-China relations, but they still have yet to prove that they could "hop off the back of the gorilla" and stand alone.

tsurantino 12y ago
I completely disagree with your notion that U.S. is less interdependent than China. The exchange is clear: U.S. needs cheap Chinese manufacturing to proliferate its innovation, and in turn, China gets direct access to U.S. blueprints, and is able to leverage and improve upon them to produce their own products. This is basic economics, not a question of "who is genuinely innovating". American companies need cheap manufacturing as much as the Chinese needs technological know-how. Why? Because if no one buys "innovative" products (because of how much cheaper they get) then we wouldn't get that innovation in the first place.
- fazzone 12y ago
  I agree. In fact, it is almost like the market has figured out 'a way for both countries to work on what they're really good at' (paraphrasing TFA). "Governments that at least partially cooperate," on the other hand, I agree would be a welcome change.
- happyscrappy 12y ago
  >I completely disagree with your notion that U.S. is less interdependent than China. Well we will probably find out shortly as the largest real estate bubble in the history of the world is about to pop in China.
- kyllo 12y ago
  China is huge but US imports are pretty well diversified at this point. Today we import a whole lot from Vietnam, India, Malaysia, etc. It's mainly the consumer electronics sector that would be hit hardest. The lower-tech manufacturing has already moved away from China to a large extent.
3am 12y ago
Yeah, their ability to replace US/developed nation demand with internal demand in order to allow the RMB to float freely will be interesting. As it is now, a lot of their growth is based on government spending and some creative financial engineering with debt (similar to Fed and containment of toxic mortgage assets) and currency manipulation intended to create a huge domestic manufacturing base. I think, complicating this, is the implicit social contract between the govt and the populace regarding economic growth and jobs. As flawed as the US system is, it is (purely IMO) a more fault tolerant - in a dynamic systems/perturbation sense - than Chinese society.
tdees40 12y ago
The US economy did hit a major recession, and Chinese growth slowed marginally, but generally did okay.
- tormeh 12y ago
  This. The Chinese economy is driven by investment, not export (though that helps). Western investors think investing in China is a good idea - that's where the growth comes from. And they're not wrong - investment in China has paid off (for those that have managed to navigate its complicated business-politics).
- adventured 12y ago
  China's economy crashed big time in fact. They took on upwards of $30+ trillion in new debt in just six or seven years to continue faking the old levels of growth, trying to buy time. They pulled a Japan, at warp speed. In other words, China took on nearly twice as much debt as they gained in GDP expansion over that time. Since the later part of the previous decade China has seen a plunge in the return on invested capital when it comes to GDP growth - the situation is so dire now, they have to add over $1 of new debt per $1 of new GDP they get out of it. The party is over. China is already the most indebted country on earth (while half a billion of their people live on $2 per day), and their pace of debt accumulation isn't slowing down. The outcome of that financially toxic situation is obvious. To keep faking 7% growth, China has to take on $20 to $30 trillion in new debt in just the next five or six years. It's a scale of debt the world simply has never seen before.
nostrademons 12y ago
FWIW, the U.S. got its start as a major industrial power by a major act of industrial espionage. (Francis Cabot Lowell went over to England for two years, worked in the textile mills, memorized all the details of their workings, and opened the first textile mill in the U.S. in Waltham, MA.) Large-scale American industrial espionage continued throughout the rest of the 19th century. American goods had the same reputation for being cheap knock-offs of British innovations that Chinese goods do now. I don't think this has anything to do with the respective cultures of either nations. Remember that China has a long culture of valuing knowledge for its own sake. Rather, it's rational for the firm that's behind to copy the firm that's ahead. The firm that is ahead has no such option available to it. That's also why it's never the best students that cheat off their peers - they have nobody to cheat from. China and the U.S. (in both periods of history) are just responding to the incentives available, as ambitious actors in their own right.
- linkregister 12y ago
  I dispute the assertion that American goods were considered cheap knock-offs by the end of the 19th century. By the mid 19th century, the "American Style" of assembly-line manufacturing with interchangeable parts was considered to be the most efficient form of manufacturing [1] and was thereafter adopted in Britain and the rest of Europe. This method was derived from various aspects of the English system and was not invented in America, though it was first widely adopted there. Though there are well-known examples of industrial espionage, American innovation in manufacturing can be attributed a combination of vast natural resources, dynamic social structure, and widespread generalist education (as opposed to the apprenticeship system of Britain at the time) [2]. [1] http://en.wikipedia.org/wiki/American_system_of_manufacturing http://en.wikipedia.org/wiki/American_system_of_manufacturin... (the article is sufficiently cited to support the claim) [2] McPherson, James M. (2003). Battle Cry of Freedom: The Civil War Era. Oxford University Press. ISBN 978-0-19-503863-7.
  - javiramos 12y ago
    I really really recommend this book to everyone in this thread: http://www.amazon.com/Made-USA-Retreat-American-Manufacturing/dp/0262019388 http://www.amazon.com/Made-USA-Retreat-American-Manufacturin...
JonFish85 12y ago
I agree with pretty much all of what you said, and I also wanted to add a bit more along these lines. It's all pretty much anecdotal, so take it for what it's worth. Engineers that I've worked with in China are wildly different from what I consider engineers in the US. They seem to be better at making a given process ruthlessly efficient, but they're not so great at creative problem solving--I suspect it's a cultural thing more than anything else, but that's just an opinion. So I think that China is great at adding value in making things efficient and cheap from an operational standpoint, but I don't think they add a lot of new ideas, which are an outcome of creative thinking. Once there are countries more desperate for manufacturing money (South America region, maybe?), China will have a problem because the jobs will leave and they will have to find a way to generate value in other ways. For now, they don't really own many brands that people know; they manufacture white-label goods, so to speak, but I can't think of any specifically Chinese name-brand goods that people buy because they are superior to anything we have in the US. Sure, a huge portion of stuff is made in China, but when was the last time something big was invented in China? It fits with your initial point, that China is dependent on US ideas, whereas the US loves their low prices, but ultimately doesn't need them.
- nissimk 12y ago
  I think that 15 years ago that was true of Korean manufacturers, and look at them now. Hyundai was a brand that was fairly reliable, but was ridiculed in popular media. Now it's on par with Japanese brands and often considered premium. Also, Samsung went from making parts for everything to developing and marketing their own premium products. Chinese manufacturers can easily follow this same path and I think it is already happening.
  - akgerber 12y ago
    The same process took place in Japan. The camera industry is a familiar example— both Canon & Nikon began by making copies of German Leica and Contax cameras, then tweaked them, then moved into innovative original designs. By the 70s or 80s, Canon and Nikon had surmounted their industry, while Contax was bought by a Japanese bit player and Leica was reduced to a niche luxury manufacturer. http://www.canon.com/camera-museum/history/canon_story/1946_1954/1946_1954.html http://www.canon.com/camera-museum/history/canon_story/1946_... http://www.kenrockwell.com/nikon/rangefinder/sp.htm http://www.kenrockwell.com/nikon/rangefinder/sp.htm The same thing happened in the bicycle industry. Shimano began by manufacturing upgraded copies of European derailleurs, and by the 90s had reached a near-monopoly on bicycle component manufacturing. http://www.disraeligears.co.uk/Site/Shimano_derailleurs_-_pull-chain_models.html http://www.disraeligears.co.uk/Site/Shimano_derailleurs_-_pu... http://www.disraeligears.co.uk/Site/Shimano_derailleurs_-_from_Skylark_to_world_domination_page_2.html http://www.disraeligears.co.uk/Site/Shimano_derailleurs_-_fr...
cyorir 12y ago
I think the typical rhetoric of "China is bad because it steals innovation!" is usually misplaced. From China's perspective, there is nothing wrong with "stealing innovation," as this model has helped grow China's economy and lift millions out of poverty over the past few decades. The diffusion of information does not produce the same "value" as the production of information itself, but from China's perspective this diffusion certainly has its own value if it boosts the growth of native industry (which can one day hopefully enable China to produce more value from its own production of information). From the American perspective, I think we tend to ascribe more value to hanging on to our innovation than is actually there. Hanging on to innovation will always provide a temporary advantage. The value of innovation is also dependent on the cost of preventing diffusion of the products of innovation. If the results of innovation are so valuable, companies should do more to prevent the outward flow of information, by locking up information systems and trying to hold on to as much of the involved human capital as possible. However, we do not do that as much as we should because there are other forms of "value" we can get by not locking up our innovation and human capital. In previous decades, Japan, Korea, and Taiwan have all followed practices similar to what China does today. The growth of native industries may have hurt America's ability to compete in these markets (and even in America itself), yet companies like Sony, Samsung and others have brought value directly to American consumers and encourage more innovation now that they actively compete with American companies in the innovation game.
- 6stringmerc 12y ago
  To coin a proverb, "There is nothing wrong with stealing innovation until you steal the life from that which creates it." China, culturally, does not innovate or foster the mindset of problem solving or collaboration that is visible in highly innovative - honestly innovative - environments. That's why, anecdotally speaking, several major science journals do not accept papers from Chinese higher education facilities, due to having to deal with far too many retractions. I'm only a bystander to this issue, but I know it's real and will take generations to correct.
  - seanmcdirmid 12y ago
    I thought it was more like "there is nothing wrong with stealing innovation until its your own innovation that is stolen." As China climbs the tech ladder and have more to lose than win by stealing, I'm sure they'll become believers in IP. There is already some bias in CS conferences with respect to Chinese submissions, which is why in blind review we take great care to "hide" our nationality (I'm not Chinese, but work in China and publish paper with Chinese). It really isn't fair, since there is some really good research going on in China, but it gets drowned out by a few bad apples.

by kirse 12y ago

tsurantino 12y ago

I completely disagree with your notion that U.S. is less interdependent than China. The exchange is clear: U.S. needs cheap Chinese manufacturing to proliferate its innovation, and in turn, China gets direct access to U.S. blueprints, and is able to leverage and improve upon them to produce their own products. This is basic economics, not a question of "who is genuinely innovating". American companies need cheap manufacturing as much as the Chinese needs technological know-how. Why? Because if no one buys "innovative" products (because of how much cheaper they get) then we wouldn't get that innovation in the first place.

fazzone 12y ago
I agree. In fact, it is almost like the market has figured out 'a way for both countries to work on what they're really good at' (paraphrasing TFA). "Governments that at least partially cooperate," on the other hand, I agree would be a welcome change.
happyscrappy 12y ago
>I completely disagree with your notion that U.S. is less interdependent than China. Well we will probably find out shortly as the largest real estate bubble in the history of the world is about to pop in China.
kyllo 12y ago
China is huge but US imports are pretty well diversified at this point. Today we import a whole lot from Vietnam, India, Malaysia, etc. It's mainly the consumer electronics sector that would be hit hardest. The lower-tech manufacturing has already moved away from China to a large extent.

3am 12y ago

Yeah, their ability to replace US/developed nation demand with internal demand in order to allow the RMB to float freely will be interesting. As it is now, a lot of their growth is based on government spending and some creative financial engineering with debt (similar to Fed and containment of toxic mortgage assets) and currency manipulation intended to create a huge domestic manufacturing base. I think, complicating this, is the implicit social contract between the govt and the populace regarding economic growth and jobs. As flawed as the US system is, it is (purely IMO) a more fault tolerant - in a dynamic systems/perturbation sense - than Chinese society.

tdees40 12y ago

The US economy did hit a major recession, and Chinese growth slowed marginally, but generally did okay.

tormeh 12y ago
This. The Chinese economy is driven by investment, not export (though that helps). Western investors think investing in China is a good idea - that's where the growth comes from. And they're not wrong - investment in China has paid off (for those that have managed to navigate its complicated business-politics).
adventured 12y ago
China's economy crashed big time in fact. They took on upwards of $30+ trillion in new debt in just six or seven years to continue faking the old levels of growth, trying to buy time. They pulled a Japan, at warp speed. In other words, China took on nearly twice as much debt as they gained in GDP expansion over that time. Since the later part of the previous decade China has seen a plunge in the return on invested capital when it comes to GDP growth - the situation is so dire now, they have to add over $1 of new debt per $1 of new GDP they get out of it. The party is over. China is already the most indebted country on earth (while half a billion of their people live on $2 per day), and their pace of debt accumulation isn't slowing down. The outcome of that financially toxic situation is obvious. To keep faking 7% growth, China has to take on $20 to $30 trillion in new debt in just the next five or six years. It's a scale of debt the world simply has never seen before.

nostrademons 12y ago

FWIW, the U.S. got its start as a major industrial power by a major act of industrial espionage. (Francis Cabot Lowell went over to England for two years, worked in the textile mills, memorized all the details of their workings, and opened the first textile mill in the U.S. in Waltham, MA.) Large-scale American industrial espionage continued throughout the rest of the 19th century. American goods had the same reputation for being cheap knock-offs of British innovations that Chinese goods do now. I don't think this has anything to do with the respective cultures of either nations. Remember that China has a long culture of valuing knowledge for its own sake. Rather, it's rational for the firm that's behind to copy the firm that's ahead. The firm that is ahead has no such option available to it. That's also why it's never the best students that cheat off their peers - they have nobody to cheat from. China and the U.S. (in both periods of history) are just responding to the incentives available, as ambitious actors in their own right.

linkregister 12y ago
I dispute the assertion that American goods were considered cheap knock-offs by the end of the 19th century. By the mid 19th century, the "American Style" of assembly-line manufacturing with interchangeable parts was considered to be the most efficient form of manufacturing [1] and was thereafter adopted in Britain and the rest of Europe. This method was derived from various aspects of the English system and was not invented in America, though it was first widely adopted there. Though there are well-known examples of industrial espionage, American innovation in manufacturing can be attributed a combination of vast natural resources, dynamic social structure, and widespread generalist education (as opposed to the apprenticeship system of Britain at the time) [2]. [1] http://en.wikipedia.org/wiki/American_system_of_manufacturing http://en.wikipedia.org/wiki/American_system_of_manufacturin... (the article is sufficiently cited to support the claim) [2] McPherson, James M. (2003). Battle Cry of Freedom: The Civil War Era. Oxford University Press. ISBN 978-0-19-503863-7.
- javiramos 12y ago
  I really really recommend this book to everyone in this thread: http://www.amazon.com/Made-USA-Retreat-American-Manufacturing/dp/0262019388 http://www.amazon.com/Made-USA-Retreat-American-Manufacturin...

JonFish85 12y ago

I agree with pretty much all of what you said, and I also wanted to add a bit more along these lines. It's all pretty much anecdotal, so take it for what it's worth. Engineers that I've worked with in China are wildly different from what I consider engineers in the US. They seem to be better at making a given process ruthlessly efficient, but they're not so great at creative problem solving--I suspect it's a cultural thing more than anything else, but that's just an opinion. So I think that China is great at adding value in making things efficient and cheap from an operational standpoint, but I don't think they add a lot of new ideas, which are an outcome of creative thinking. Once there are countries more desperate for manufacturing money (South America region, maybe?), China will have a problem because the jobs will leave and they will have to find a way to generate value in other ways. For now, they don't really own many brands that people know; they manufacture white-label goods, so to speak, but I can't think of any specifically Chinese name-brand goods that people buy because they are superior to anything we have in the US. Sure, a huge portion of stuff is made in China, but when was the last time something big was invented in China? It fits with your initial point, that China is dependent on US ideas, whereas the US loves their low prices, but ultimately doesn't need them.

nissimk 12y ago
I think that 15 years ago that was true of Korean manufacturers, and look at them now. Hyundai was a brand that was fairly reliable, but was ridiculed in popular media. Now it's on par with Japanese brands and often considered premium. Also, Samsung went from making parts for everything to developing and marketing their own premium products. Chinese manufacturers can easily follow this same path and I think it is already happening.
- akgerber 12y ago
  The same process took place in Japan. The camera industry is a familiar example— both Canon & Nikon began by making copies of German Leica and Contax cameras, then tweaked them, then moved into innovative original designs. By the 70s or 80s, Canon and Nikon had surmounted their industry, while Contax was bought by a Japanese bit player and Leica was reduced to a niche luxury manufacturer. http://www.canon.com/camera-museum/history/canon_story/1946_1954/1946_1954.html http://www.canon.com/camera-museum/history/canon_story/1946_... http://www.kenrockwell.com/nikon/rangefinder/sp.htm http://www.kenrockwell.com/nikon/rangefinder/sp.htm The same thing happened in the bicycle industry. Shimano began by manufacturing upgraded copies of European derailleurs, and by the 90s had reached a near-monopoly on bicycle component manufacturing. http://www.disraeligears.co.uk/Site/Shimano_derailleurs_-_pull-chain_models.html http://www.disraeligears.co.uk/Site/Shimano_derailleurs_-_pu... http://www.disraeligears.co.uk/Site/Shimano_derailleurs_-_from_Skylark_to_world_domination_page_2.html http://www.disraeligears.co.uk/Site/Shimano_derailleurs_-_fr...

cyorir 12y ago

I think the typical rhetoric of "China is bad because it steals innovation!" is usually misplaced. From China's perspective, there is nothing wrong with "stealing innovation," as this model has helped grow China's economy and lift millions out of poverty over the past few decades. The diffusion of information does not produce the same "value" as the production of information itself, but from China's perspective this diffusion certainly has its own value if it boosts the growth of native industry (which can one day hopefully enable China to produce more value from its own production of information). From the American perspective, I think we tend to ascribe more value to hanging on to our innovation than is actually there. Hanging on to innovation will always provide a temporary advantage. The value of innovation is also dependent on the cost of preventing diffusion of the products of innovation. If the results of innovation are so valuable, companies should do more to prevent the outward flow of information, by locking up information systems and trying to hold on to as much of the involved human capital as possible. However, we do not do that as much as we should because there are other forms of "value" we can get by not locking up our innovation and human capital. In previous decades, Japan, Korea, and Taiwan have all followed practices similar to what China does today. The growth of native industries may have hurt America's ability to compete in these markets (and even in America itself), yet companies like Sony, Samsung and others have brought value directly to American consumers and encourage more innovation now that they actively compete with American companies in the innovation game.

6stringmerc 12y ago
To coin a proverb, "There is nothing wrong with stealing innovation until you steal the life from that which creates it." China, culturally, does not innovate or foster the mindset of problem solving or collaboration that is visible in highly innovative - honestly innovative - environments. That's why, anecdotally speaking, several major science journals do not accept papers from Chinese higher education facilities, due to having to deal with far too many retractions. I'm only a bystander to this issue, but I know it's real and will take generations to correct.
- seanmcdirmid 12y ago
  I thought it was more like "there is nothing wrong with stealing innovation until its your own innovation that is stolen." As China climbs the tech ladder and have more to lose than win by stealing, I'm sure they'll become believers in IP. There is already some bias in CS conferences with respect to Chinese submissions, which is why in blind review we take great care to "hide" our nationality (I'm not Chinese, but work in China and publish paper with Chinese). It really isn't fair, since there is some really good research going on in China, but it gets drowned out by a few bad apples.