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Introduction: Surprises in China’s Economic Model and Profiting from Them

Post Series: 2011: Volume 10, Number 2
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Introduction: Surprises in China's Economic Model and Profiting from Them

The first three articles in this issue of China Currents each point out some of the unusual, and perhaps unexpected, characteristics of China’s stunning economic development, and the following two pieces discuss ways to profit from them – for a neighboring country with a history of antagonistic relations and for budding entrepreneurs with eyes on the China market.

The lead article by Sam Trachtman explains how China’s model of development has so far broken the mold in terms of international trade surpluses and deficits. Normally low-income countries have trade deficits that are complemented by net foreign investment inflows that help them fund infrastructure and productive investments in various sectors. In China’s case, the opposite has been the norm. Trachtman reviews the current thinking on why this has been the case, elucidating new research focusing on distortions in factor markets as a new starting point.

Another surprise development is described in the second piece by Clifton Pannell, where the previous backwater Macau has flourished over the last decade while a former leader of the East Asian economies, Hong Kong, faces many worrisome new challenges. Hong Kong’s logistical and financial strengths are facing serious competition from cities in China, while Macau has offered up a glitzy but sophisticated gaming industry that has been remarkably prosperous.

In neighboring Vietnam the consequences of a strong, assertive China are also being felt. With a background of centuries of intermittent conflict, surprisingly relations between Vietnam and China have improved recently, as Dennis McCornac chronicles. Although there are tensions over territorial claims in the South China Sea, Chinese labor in Vietnam, and head-to-head competition in labor intensive goods, new agreements have been signed along with new processes established to deal with rising conflicts in the future. These are very positive signs.

So, how to make the most of these trends?

Chen Ye-Sho, E. Watson and Renato F. L. Azevedo describe a vibrant channel for linking Chinese and U.S. businesses to the emerging opportunities and to each other. This linkage model involves students and a long-term basis for innovation. Finally, our interview with Scott Ellyson of East-West Manufacturing provides one clear case of a U.S. company utilizing the resources of the region to provide value globally. Mr. Ellyson also offers some sobering thoughts on how, and if, the U.S. economy can maintain its competitiveness in the years to come.

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