By Hao Li: Subscribe to Hao's RSS feed
August 31, 2010 8:59 PM EDT
China is the world's largest exporter of manufactured goods. But exports were “virtually nothing three decades ago and almost nothing two decades ago,” said Andy Xie in an op-ed piece in Caixin, a Beijing-based newspaper.
China's exports, and its overall economy, really took off in the past decade. Xie, currently an independent economist and the former chief Asia-Pacific economist at Morgan Stanley, attributes China's success to its ability to attract multinational corporations (MNCs) to base their production there.
In 2001, China finally became a member of the World Trade Organization (WTO) after about 15 years of negotiations. This was “the critical difference to [China's] export success” because it gave MNCs “the confidence to base so much production in China,” said Xie.
Follow us
China's export triumphs of the past decade also coincided with a weakness in the U.S. dollar, which peaked in 2002 and has steadily declined ever since. The Chinese yuan was pegged to the dollar, so a weak dollar made Chinese exports cheaper and more competitive in markets like Europe. Xie believes the weak dollar was in part caused by the increasing competitiveness of the Chinese economy.
In addition, China's labor force is large and productive -- Xie believes this is the primary reason for China's economic growth.
Until five years ago, nominal wages in China remained stagnant in U.S. dollar terms for over a decade while productivity increased almost 10 percent per year. This translated into rising profits for MNCs and higher tax revenues for the government. Subsequently, the government invested these revenues in infrastructure, which made production in China even more attractive for MNCs.
MNCs were also eager to sell to China's growing domestic market, which was an additional incentive to produce there locally. In fact, lately, China has used access to its domestic market as a bargaining chip to win various concessions from MNCs.
No other country can offer both the cheap production costs and the potential to sell to such a large local market, said Xie.
The Most Dangerous US States to Drive In 2012 [SLIDESHOW]
After Greece Exits The Euro, What's Next? An Illustrated Guide To 5 Possible Scenarios
TCS World 10K Bangalore 2012 Free App For iPhone, Android, BlackBerry, Windows Phone [Download Links]
Spain's Bankia Suspends Shares On Bailout Rumors
Searching For The American Dream, In A Chinese RVWe value your privacy. Your email address will not be shared.
