- ISBN13: 9781416583707
- Condition: NEW
- Notes: Brand New from Publisher. No Remainder Mark.
Product Description
THE EMERGENCE OF CHINA as an economic superpower is now widely recognized, but as Zachary Karabell reveals, that is only one aspect of the story. Over the past decade, the Chinese and U.S. economies have fused to become one integrated system. How China and the United States manage their relationship will determine whether the coming decades witness increased global prosperity or greater instability.
Karabell traces the twenty-year history that began with the suppression of the protests in Tiananmen Square in 1989. The Chinese leadership adopted a policy of aggressive economic reform and courted U.S. companies and expertise. Karabell charts how integral those companies — including Federal Express, Kentucky Fried Chicken, Avon, and Wal-Mart — have been to China’s success and how integral China has been to their growth. Though accelerated by the admission of China to the World Trade Organization in 2001, the economies began to fuse without attracting much notice. Preoccupied with the threat of terrorism and wars in Iraq and Afghanistan, the United States soon found itself deeply in debt to China while also reaping the rewards of China’s growth.
Now both countries find themselves in an unfamiliar and challenging position. After years of seeking closer integration with the United States, China has begun to question the wisdom of that embrace. The United States, buoyed by China’s loans, faces a level of dependency that has generated considerable anxiety. The intertwinement has enhanced the global economy but undermined the sovereignty that governments so crave.
Yet, as Karabell argues, the fusion has advanced too far for either to extricate itself without severe harm. The challenge for the United States is to embrace this new world even with some loss of relative power in order to ensure its prosperity in the future; the challenge for China is to recognize that it is now a major player on the world stage with all the risks and responsibilities that entails. We need them and they need us, but the jury is still out on whether either can fully accept that new paradigm.
In a book rich in individual stories, Karabell, informed by his considerable experience, not only provides the first comprehensive account of how these two countries became one economy but also makes a compelling case for why its continuation in the future is a vital element of a stable, prosperous world.
Superfusion: How China and America Became One Economy and Why the World’s Prosperity Depends on It
Superfusion: How “Chimerica” Will Shape This Century
By Ravi Nagarajan
Published on February 2, 2010 at 10:38 am
Few topics generate as much controversy in the United States as the question of whether free trade has been beneficial for our society. In the early 1990s, the main focus was on trade with Mexico and the impact of the North American Free Trade Agreement (NAFTA). Protectionist sentiment still occasionally results in trade disputes with Mexico such as the restrictions on Mexican trucking that resulted in higher tariffs last year. However, the main target of trade skeptics today is China. The widespread failure to grasp the nature of the complex relationship between the United States and China has led to periodic trade disputes and could seriously harm both countries in the years to come.
Zachary Karabell has made an important contribution to the debate in Superfusion: How China and America Become One Economy and Why the World’s Prosperity Depends on It. Mr. Karabell attempts to trace the history of China’s remarkable rise over the past twenty years by presenting a wide ranging “thirty thousand foot” view of political and economic forces as well as individual case studies of American companies that penetrated the Chinese consumer market. The underlying thesis is that China and America have “fused” into a single economy of “Chimerica”.
Expanding American Brands into China
While Mr. Karabell’s big picture observations receive more space in the book, from a business and investing standpoint the individual case studies are equally interesting. The question of how a business can establish, maintain, and grow a brand over time is difficult enough to answer when one is dealing with a single culture and society. Even within a country like the United States, there are many brands such as See’s Candies that have not gained traction outside one region. What steps must be taken to expand brand loyalty into a very different culture?
The case studies of Kentucky Fried Chicken and Avon were both revealing in terms of the missteps that American firms are prone to making when expanding into different cultures as well as the eventual placement and branding of the products. Some amusing anecdotes are discussed such as KFC’s mistake in translating the “Finger Licking Good” slogan into a Chinese phrase meaning “So Good, You Suck Your Fingers.” But the most interesting aspect of both KFC and Avon’s entry into China is that they transformed middle market brands in the United States into high end “aspirational” brands in China.
This is actually not very surprising because countries that are experiencing rapid growth in personal incomes often want to emulate richer countries and by consuming American brands, these consumers were demonstrating their economic success in small ways. Of course, the American brands had to be adapted for local tastes and the book provides useful details on how this can be done. KFC has been so successful due to its “early mover” advantage in China that it is now the largest fast food operator in the country with over 2,300 outlets including more than 200 in Beijing alone.
Taking a Broader Perspective
While the individual case studies are of great interest, Mr. Karabell’s major focus is clearly on the broader macroeconomic forces that are driving America and China into a single unified economy that he calls “Chimerica”. The use of that term is perhaps unfortunate because it is likely to serve as fodder for political sound bites promoting protectionist policies. The book clearly shows that not only are these economic ties mutually beneficial in many ways but that they have reached the stage where China and America are integrated to the point where attempts to reverse course would lead to disaster.
Proponents of isolation often gloss over important questions with sound bites such as “buy American”, but what does this really mean when American companies have manufacturing facilities in foreign countries while foreign companies have facilities in the United States? When one buys a Toyota Camry manufactured in Kentucky, is that choice more or less “American” than purchasing a Ford Mustang manufactured in Flat Rock, Michigan simply because Toyota is a Japanese company? The same example applies to American companies that outsource manufacturing to foreign countries and then import these goods into America for final sale. Should the litmus test be the question of where the company’s stock is listed? Or the question of what percentage of revenue is generated from various countries? Or the ownership of the company’s shares based on the citizenship of the shareholder?
All of these questions may be of interest from a public policy perspective but the bottom line is that in a global economy companies are increasingly focusing on leveraging the comparative advantage of different countries in an attempt to operate in the most efficient manner possible. One can object to this by correctly claiming that American manufacturing jobs have been lost over the past several decades. However, it is disingenuous to not also examine the benefits that American consumers have enjoyed in the form of more affordable consumer goods produced by overseas manufacturers or the benefits of American brands expanding into China.
Looking Ahead
Mr. Karabell concludes the book with a discussion of how the United States can avoid a fate similar to Great Britain’s after World War II. After the war, economic, political, and military dominance of the West clearly shifted from Britain to the United States and has resulted in six decades of undisputed dominance for America. With China’s economy growing at a much faster rate than America’s, is it inevitable for the United States to follow the path of Britain in the coming decades?
This is a sobering question particularly in light of the massive government deficits facing the United States that neither political party shows any sign of addressing. The fact that China is playing a major role in funding these deficits will eventually force the United States to come to grips with the problem. The question is whether this will be done on America’s terms or in a way decided by the Chinese.
Recent events in Washington are troubling to say the least. Politicians are calling for a commission to address tax and spending questions that our elected Representatives have decided to punt on. This reveals an abdication of duty of the highest order and does not inspire confidence that the matter will be decided on America’s terms.
It would cost less than $14,000 (at the full retail price) to send each Member of Congress and the President’s cabinet a copy of Mr. Karabell’s book. It would be money well spent if they actually bother to read the book.
Rating: 5 / 5
China, the USA’s largest creditor, buys billions of dollars in U.S. Treasury bills. That allows us to keep interest rates low. Low interest rates encourage Americans to spend more money than they have. Americans especially like to consume low-priced Chinese goods. So China has been happy to fuel this cycle of investment and consumption. Thus our two countries have become partners, says Karabell: “The Chinese and U.S. economies have fused to become one integrated system. Americans should embrace this fusion.”
Karabell downplays the fact that the relationship is more a codependency than a partnership–like drug dealer and addict. Now the USA has overdosed on debt, while China keeps saving, investing, and growing. China’s premier Wen Jiabao stated that he is worried about the safety of China’s investment in the USA. How long can the “partnership” last? Karabell underestimates the potential for conflict and the impediments to the happily integrated system that he envisions.
For example, some American politicians scold China for keeping its currency undervalued, its banking system inefficient, its savings rate high, and consumption low.
Rating: 3 / 5
Zachary Karabell’s book,”Superfusion”, is a stunningly blunt but realistic assessment of America’s current position in the global economy as well as China’s ascendancy. There are several important themes that emerge from his book.
While practicing their own version of American capitalism, the Chinese are succeeding in transforming their economy and society to achieve a level of economic stability and potential economic hegemony. There are myriad political implications.
Meanwhile, the United States, the epicenter of capitalism, seems to have abandoned the spirit of the capitalist construct. Turning inward and decrying free trade, behaving in a reactive fashion to the recent global economic crisis; if continued, these behaviors do not bode well for our relative economic position. We are in danger of not only looking askance at the Chinese but looking away from our own political and economic shortcomings.
The nation-state model and the impetus to maintain economic and political sovreignty at all costs is perhaps outmoded. It seems counterintuitive to the inevitable dynamic of globalization and all the complexities that implies. Political and business leaders at every level must recognize that it’s a small planet replete with competing ideologies and political and economic constructs. Capitalism, however implemented, will allow civil societies around the globe to flourish.
Chimerica is a phenonmenon that developed over the last 20 years. Both the United States and China were largely unaware that it was happening, much less the “unintended consequences” of the relationship. Zachary Karabell’s book is an informative history of this phenomenon and a call for better understanding of our intertwinement. It is a call we must heed.
Barbara Barone
Phoenix AZ
Rating: 5 / 5
Zachary Karabell, president of River Twice Research, is one of the few original thinkers out there who also has a sense of humor. So there’s more than one? Zach has brought his considerable talents to bear on the current state of the Chinese-American relationship in a new book, Superfusion: How China and American became One Economy and Why the World’s Prosperity Depends On It. International trade has fused the two countries into a single economic unit that accounts for a quarter of the world’s population and a third of its GDP, despite wildly different cultures, much like the loose confederation that makes up the European Community. The Middle Kingdom now has reserves of $2.3 trillion, which is overwhelmingly invested in the US. Where else can it go? That enabled them to step up and play an important role in the bail out of the US financial system this year. But it is an imbalanced agglomeration, with Americans over consuming and under saving and the Chinese doing the reverse. This has to stop, lest the symbiotic relationship tears itself apart. The tit for tat, storm in a tea cup, where the US imposed punitive import duties on Chinese tires and the they retaliated with a ban on American chicken feet (yes, they eat them, yuk!), is a recent example. The reality is that old, boring industries that once might have fought tooth and nail for protection are now migrating to China en masse and finding new life. Bet you didn’t know that General Motors sells more cars in China than in the US, some 1.6 million this year? Don’t hold your breath waiting for China to float the Yuan, as it is one of the few tools that give the Mandarins in Beijing direct control of a huge, disparate economy. Chinese military spending is so parsimonious that it won’t remotely comprise a threat to the US. What little they have is directed at potential regional aggressors, like Japan, India, and Russia. The greatest risk to the existing relationship is that Chinese growth continues so rapid, that it pits them against the world in resource bidding wars, which could get ugly. With crude at $82 and copper at $3, has that already started? The book is well worth a read for some excellent “out of the box” analysis. Does anyone have any good recipes for chicken feet?
Rating: 5 / 5
Recent economic travails have triggered intensive questioning of the financial system created by the United States and warped by Wall Street. That has led many to reconsider America’s place in the world and wonder whether this is indeed the twilight of American power. At the same time, both China and the U.S., after years of seeking closer integration, have begun to question that wisdom. Author Karabell, however, argues that their fusion has advanced too far for either to extricate itself without severe harm. Over the past two decades, China and the U.S. have become one integrated hyper-economy – ‘Chimerica.’
To bolster his point about how the U.S. and China economies are intertwined, Karabell contends that without Chinese reserves bolstering U.S. Treasury bonds in the past 18 months, it would have been far more challenging for the United States government to rescue a crumbling financial system. And without American consumers having bought Chinese goods over the past years, China would never have accumulated the reserves that allowed it to spend hundreds of billions of dollars to support the economy during the worst of the financial implosion. (On the other hand, without the low American interest rates afforded by Chinese funds, the U.S. may not have had a housing bubble.)
China began with a trade economy limited to 5% of GDP in the 1970s – it was isolated, and self-sufficient as best possible – like North Korea today. The process of turning outward began about 20 years ago. First came about ten years of experiments with private enterprise in special enterprise zones. By the late 1990s, “State-Owned Enterprises” (SOEs) were allowed to lay off workers, select banks could pursue delinquent firms for repayment, and many restrictions on size and scope of private companies were lifted. As many as 50 million lost their jobs. At about the same time the government also lifted its once-stringent restrictions on internal travel and migration. Its urban population went from 25% in 1990 to nearly 40% at the end of the millennium – nearly 200 million moved.
This then led to people requesting they be allowed title to own homes, and the sell-off of many state assets. Infrastructure needs jumped. SOE managers became increasingly held to performance standards, given wider latitude, and rewarded or punished for results. China’s leaders also learned from watching Russia’s early 1990s problems after dictation from the U.S. and World Bank, and decided that China needed to go slower, in stages. (Eg. lower tariffs slowly, not all at once.)
A major early boost to China-U.S. trade was President Clinton’s decision to stop making trade contingent on its human rights situation. Reasons: 1)The Chinese weren’t budging. 2)The instability hampered businesspeople in both countries. (We really need to stop insisting we know what’s best for everyone – it’s arrogant and ignorant, even self-defeating. We need to recognize that, as Karabell points out, what China did in the 1990s took the states of western Europe more than a century and the U.S. more than five decades.)
Karabell then tells how KFC and then Avon fared in China. KFC now has about 2,000 locations, representing less than 7% of Yum’s branches globally but 25% of profits. Its three-story 700 seat flagship store near Tienanmen Square opened in 1987. A two-piece meal + drink cost about the average Chinese weekly wage. Six years later, KFC had less than 12 stores in China – starting out slow was also its guide. A few Chinese items have been added to the menu, and a ‘Chicky’ mascot proved much more effective than Col. Sanders (viewed as a stern grandfather figure), especially with children. The firm focused on premier locations near tourists, partly because advertising was practically non-existent. While meal costs are less than comparable U.S. offerings, so are costs – overall meals are about 3-4X as profitable as in the U.S.
Avon went to China in 1990. Struggling in the U.S. (women had growing opportunities), and targeted at the middle-class here, its initial 1,000 Chinese representatives were highly educated and skilled (they lacked alternative opportunities). One of its first was a 40-year-old pediatrician earning $120/month. Working part-time, she soon sold $5,000 in products, pocketed $1,500, and thought of going to Avon full-time. Avon also boosted its success by tailoring products to the tastes of local women, and producing them in China as well. However, the Chinese government was suspicious of multi-level sales arrangements (fear of high prices and Ponzi-schemes) and disliked the large-meeting recruiting drives (feared anti-government activities). Direct sales were then banned in 1998. Avon switched to retail sales and continued to do well. In 2006, the government allowed direct sales to resume.
Trade deficits are a sensitive problem in a number of nations. The topic is acerbated by unclarity of statistics. Assembling a G.E. appliance in a Chinese factory it owns is not likely to be classified as an import when the product arrives in Long Beach. However, if the same product had been outsourced to a Chinese company and produced on the mainland, it would be classified as an import upon arriving here. (Thus, our trade deficit is understated; this may partly explain why it has grown so fast. Other reasons include a preoccupation with terrorism and Iraq.)
Karabell claims that one reason Chinese leaders have been so adamant about not allowing China’s currency to trade freely is they believe this would lead to a collapse of the currency as in Russia during the early 1990s. The problem centers around concerns over the large proportion of non-performing Chinese bank loans. However, Karabell’s explanation of the link was unclear and ineffectual. Meanwhile, the Chinese government is working to ‘clean-up’ the problem.
By 2007, more than 400 of the S&P 500 derived 40%+ of their profits from outside the U.S. International sales also are faster growing. (Karabell doesn’t explain whether this is from sales to outside nations, or profit allocations to offshored work.)
“Superfusion” ends with Karabell recounting Britain’s need for large loans after WWII. The U.S. took advantage of the situation and required Britain to open up its empire to trade, thus ending the British Empire and forcing it to take a backseat vs. the U.S. Karabell believes the same may happen to the U.S. vs. China, and recommends we re-orient ourselves away from current military and security challenges (eg. Given their intertwined economies, do Japan and Taiwan need the U.S. Navy’s 7th Fleet in the Pacific to protect them from China?) to a greater economic focus, and working closer with China. (Despite Karabell’s excellent material, I still believe we need to restrict free trade with China.)
Rating: 5 / 5