China: Due for a Reality Check
Corruption, environmental problems, and product-safety concerns threaten the economic miracle. Pro or con?
Pro: Too Much, Too Fast
China has its exports to thank for its economic juggernaut. This year’s pet-food disaster—in which companies recalled 5,300 products, largely because of tainted ingredients from the mainland, and thousands of dogs and cats were killed—underscores the giant weakness behind the success story. As more safety concerns crop up, who knows how many of the Middle Kingdom’s trading partners will cancel manufacturing contracts?
And if quality issues don’t threaten China’s outsourcing business, the ambitions of other emerging economies will. Russia, South America, the Philippines, and Africa aren’t blind. Their governments see China’s success, and will pursue their share of the economic miracle that outsourcing bestows.
Let’s not forget, either, the havoc China’s development has wreaked within the country itself. Waste disposal and pollution will grow into bigger and bigger problems, as the landscape sprouts more factories and industrial complexes.
Some Beijing officials, as well as those at local levels—the country has 41,636 townships—have a stronger interest in winning business than they do in preserving the environment. A significant number are undoubtedly in bed with the factories seeking building permits and other privileges.
Yes, the Chinese government is good about assuring its foreign trading partners of its ecologically sound policies, but enforcement ranges from tricky to impossible. Communist officials in localities have great power. A mayor who likes the idea of a new tool-and-die factory can make it happen with relatively few checks and balances.
And no Chinese official at any level seems capable of stopping the intellectual-property theft. Even in the heart of Beijing, peddlers are selling pirated Microsoft Office software and fake Callaway golf clubs. These problems do not endear the country to its foreign trading partners.
In short, just because China can mobilize Big Business fast, it doesn’t mean it can regulate its industries to make them safe, green, quality-driven, and chock-full of integrity. Any of these problems could blow up, and give the economic miracle a dose of hard, cold reality.
Con: Hard Work Always Brings Profit
Chinese bureaucracy works differently from that of the superpower known as the United States of America. For example, plans to rebuild on the World Trade Center site, an effort close to the heart of virtually every U.S. citizen, remain stalled six years after the September 11 tragedy.
In Beijing, on the other hand, once a decision is made to, say, build a new industrial complex, it can be up and running, along with new apartment buildings and roads, within a few years. The country’s economy has averaged 9.5% annual growth for three decades.
That growth derives from a highly diverse mix of products. China is no one-trick pony. The country produces clothing, TVs, home furnishings, nanotech optics—you name it. In the unlikely event its industries take a seriously damaging hit, Beijing could easily purchase business interests in other countries. China has $1.2 trillion in foreign reserves, and a healthy trade surplus.
True, corruption, pollution, and poor working conditions for its people form something of a dark cloud over the economic miracle. But let’s face reality: The U.S. has contended with the same problems for decades now, without their causing any full-blown economic disaster. (The Great Depression of the 1930s resulted not from any of the above causes, but rather from overproduction and excessive speculation.)
And China is working diligently to fight corruption and pollution anyway. The fact that the country charged 33,000 government officials with misuse of power demonstrates its commitment to fairness and honesty. Although the recent government execution of Zheng Xiaoyu—the food and drug commissioner accused of accepting bribes in return for approving unsafe medication—isn’t something to applaud, it does show Beijing’s willingness to act swiftly when its products’ safety is compromised.
China is not broken. It’s experiencing the growing pains of any booming economy, and its future in international business looks burgeoning and bright.Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.