This column originally appeared in Forbes.
The year 2012 is shaping up to be a difficult one for America-China relations, as both nations jockey for greater influence in the Asia Pacific region. President Obama has announced he will send 2,500 marines to rotate through Darwin, Australia, and has chastised China for not “playing by the rules.” Many in China view Obama’s moves as a containment strategy and have stepped up their rhetoric calling for an end to American hegemony.
Making matters worse, both countries are entering election years of sorts, as China’s president and prime minister retire and as the U.S. chooses its president. To cement power, leaders of either country might appeal to factions calling for muscular responses, which could quickly spiral out of control and lead to trade wars or even worse. Already we have seen the billionaire entertainer Donald Trump make a misguided call for tariffs to be slapped on Chinese imports, and the idea has gained traction in political circles. Republican Presidential candidate Mitt Romney says he will to take a strong line against China if he is elected.
A trade war with China will not help the U.S. jump-start the job creation it desperately needs. More economic interdependence will. China will eclipse the United States as the larger market for Intel (INTC) in 2012, and it has already become the second largest market for Apple (AAPL) and DELL.
As a patriotic American who has lived in China for much of the last 15 years, I am saddened seeing the tension rise, and I don’t think a new cold war is out of the question. Much of the strain comes from a misunderstanding, sometimes willful, among many in the West about how China is evolving, and from the perpetuation of simply wrong ideas about the nation. For instance, New York Times columnist and Princeton professor Paul Krugman calls China a “bad actor” that is “stealing” American jobs by keeping the value of its currency low.
In my new book, "The End of Cheap China," I argue that analyses by Krugman and others do not hold up to even basic scrutiny, and I describe not only the true disruption China’s rise could cause but also the opportunities it offers for American job creation.
In one chapter I analyze China’s currency and show that China’s manufacturing beats America’s because of superior infrastructure and efficient labor pools, not because of a manipulated currency, as Krugman argues. I point out that China is no longer a cheap place to do business. Not only did its currency appreciate by 8% in the last year, but 21 of China’s 31 provinces increased their minimum wage this year by 22%. Office space is more expensive in Shanghai than in many Western capitals. Currency rates are not the only mechanism for repairing cost imbalances—a fact that Krugman does not seem to get.
To present a picture of how different levels of Chinese society are changing, I’ve interviewed Chinese billionaires, senior government leaders, migrant workers, and even prostitutes. I even wrote a chapter on lessons learned from China’s sex industry.
Another chapter is about the emergence of modern Chinese women, and their hopes, dreams, and aspirations and how Western businesses can sell to them. I track Chinese women’s shifting societal from the 1950s to now, and how empowered they are becoming. I examine China’s shift away from being an export-oriented economy to one that is consumption-led, and what that means for brands like Gap (GPS), Ralph Lauren (RL), and Nike (NKE).
China’s rise will undeniably disrupt the international system and cause tension for companies and governments that don’t handle it well. I’ve interviewed everyday people and political leaders from Pakistan, Australia, Rwanda, and Canada to see how Chinese investment is affecting their domestic relations and how they are reacting to China’s rise.
The best way to ensure global economic and political stability, and to generate profits, is by getting a better understanding of China. Too much of the current discourse about the country is based on fear-mongering, hysteria, and phantom facts rather than rational discourse. I am hoping to add to the rational side.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.