Back to China, and Its Less Loving Activities

After my hiatus working on other projects, such as a new blog and my actual job, I wanted to get back into the swing of things with a post about my favorite subject: China. The last time I brought up the PRC, I talked about its tying itself into the world economy and its developing economy at home. This time I would like to take a look at the downside of those efforts.
We have seen the reports on China's growing economy and we have all heard of the problems with pirated software and cheap knockoffs from China, but how many of us know how much counterfeiting is going on in that country and how much is being done about it? Worse yet, how much does it effect our daily lives?
All of those questions are easy to ask but hard to answer, partially because they are so intertwined. In order to comply with World Trade Organization regulations, China has had to publicly crack down on counterfeiting, but state owned factories are in on the game. See how complicated it has become already? Another complication to the ending the Chinese piracy is how wide spread it is. They manufacture anything from soap and shampoo to peanut butter and beer, cell phones to software, even fake motorcycles and car parts. Some estimates of the market penetration are a conservative 30% of all products sold. The shear breadth of the counterfeiting is costing legitimate businesses millions to develop means to identify the real deal from the fakes, whether it be Budweiser's temperature reactive label or Microsoft's (now faked) holographs on the boxes.
One of the reasons China is so lax on cracking down on piracy is that the state is well aware of the technological disadvantage its companies are at. Their tech base is about a decade behind most fully industrialized countries. The government aids the state run economy through efforts to steal technology from other countries to bring itself into closer competition on the world market. Like all espionage, the PRC does not limit itself to consumer goods and has had many high profile investigations into attempts to steal classified military information. This is an interesting look at China's spying tactics, for those who are interested.
Why is all of this a concern for us? After all, it's not like they are getting the one up on our industries and will be selling high quality items that do new and different things, right? Well, that isn't the concern. What the counterfeiting does to our economy is send in lower quality items (that still work) at much lower prices. The influx of low priced goods undercuts our demand economy and undermines the years of R&D and the millions of dollars in development and branding spent by our companies. It decreases the incentive to develop and makes the reputations of the companies fall. Do we really want that to happen?

The Changing China

In an earlier post, I mentioned China briefly and would like to open that can of worms just a little bit further today. When I was in college, I wrote a paper which detailed why I believed China would continue to integrate itself into the world economy and power structure in a peaceful manner. I argued this in light of China's emerging economy, its liberalizing labor laws, and China's changing attitudes toward trading on a global scale. In many ways, I still stand by this assessment, but it is also disturbing to note that China is becoming a dichotomous country in terms of its outlook on the world around it.

One, China's economy needs outside sources for technology and outside markets. Chinese companies are beginning to invest in other countries in the region and the world, trying to integrate themselves into an already strong Occidental market. With China's manufacturing ability and immense manpower, production is not a problem. What is a problem is the lack of the technological base possessed by the West, specifically the educational and scientific advantages in the United States. China can buy the technology it needs, but this can be costly. They can also reverse engineer or steal the technology they need, but this can be dangerous. Just because they know how we make something does not mean that they can replicate it. Yes, they can follow the plans but they may not have the high quality equipment to make it correctly, leading to low quality copies, almost like a dirty Xerox copier where you can see what its supposed to be, but you can't use it nearly as well. Also, as part of China's search for a market for its goods, they will sell to anyone who can buy, including states which have a historically strained relationship with China, such as North Korea, and states with a strained relationship with the United States, such as Iran.

G. John Ikenberry points out that China can grow into the current world structure, or can grow in opposition to it. He uses several examples, first that the United States grow into the world structure around the turn of the 20th century, and subsequently changed the world power structure peacefully and without damaging the countries in Europe where the power had formerly resided. Second, he points out that Germany in the same time frame grew its economy and military at a high rate, and then challenged the rest of Europe. I think that China can learn from this history lesson, because, even though Germany had a much larger and better trained military as well as a larger economic base, the old guard still defeated them resoundingly. Unfortunately that defeat led to Germany's rise in the 1930's and Hitler's attempt to lead the country into its former glory. It would be to China's advantage to grow within the current world economy, as it already has a large stake in it. To disrupt that trade and anger those sources of income would unnecessarily hamper economic growth.

However, no matter what China's new economic policies are, we must remember that it is a socialist state and does not always do what we as capitalists would consider is in its best interest. As a developing country, the largest portion of its economy is still agriculture, however the policies which drive economic growth also mirror socialist Russia's environmental degradation. In order to become a major world player, China is destroying itself. Accordingly, the good of the country is to the detriment of the people. The aggressive state lead growth has lead to other aspects falling by the wayside, something that in a truly capitalist economy is much less likely to happen due to consumer and workforce pressures.

I think that this is all for now. I will continue in a later post with a, hopefully, more structured analysis.