Growth
in China, it is said, is slowing. GDP
growth has reportedly fallen
from 9.7 per cent in the first quarter of 2011, to
9.5 per cent in the second quarter, 9.1 per cent in
the third and 8.9 per cent in the fourth. Much is
being made of these numbers, though the 9.2 per cent
average over 2011 is still high and the government
has itself attempted to slow the system to rein in
inflation.
One can sense an element of schadenfreude here. For
too long now China has been showing up the rest of
the world with its high rates of growth. This is especially
true of the United States, which imports much from
China, depends on inflows of capital from that country
to finance its deficits, and is always looking for
the next country to challenge its global supremacy.
However, if China's growth is indeed slowing, this
is no cause for even the US government to celebrate.
A poorly performing China can drag the US down as
well. Not just because China, with its large geographical
size and population, is the growth pole that prevents
the multi-speed global economy from sinking into another
crisis. But because China is too important a market
for the large multinational corporations that symbolise
US economic power.
This last fact has been driven home by the recently
released estimates yielded by the 2009
edition of the five-yearly benchmark surveys
of the operations of US multinational corporations
conducted by the Bureau of Economic Analysis of the
US Department of Commerce. According to those figures,
growth in the value added by US multinational firms
slowed by almost half from 4 per cent to 2.2 per cent
between 1999-2004 and 2004-09. However, that deceleration
was accompanied by a shift in the relative importance
of parents and majority owned foreign affiliates (MOFAs)
in the aggregate performance of US MNCs. In 1999 and
2004, parent firms accounted for a little more than
three-quarters of value added by US MNCs. But since
then the share of parent firms in value added by US
MNCs has fallen by close to 10 percentage points to
68.3 per cent in 2009. In sum, while operations of
parent companies still dominate the activities of
US MNCs, there appears to have been a significant
shift in US multinational operations away from parent
firms at home to affiliates abroad.
Of relevance here is the fact that, of the countries
that were locations contributing to the increment
in the operations of US multinationals over 1999-2009,
China was one. The Asia-Pacific region, which accounted
for 18 per cent of the value added by majority-owned
affiliates of US multinationals in 1999, contributed
26 per cent of the increment in their value added
during the decade ending 2009. And within the Asia-Pacific,
China, which accounted for less than 4 per cent of
the value added by MOFAs in 1999, contributed close
to 19 per cent of the increment in MOFA-value added
in that region during the relevant decade. Manufacturing
accounted for a dominant 61 per cent of MOFA value
added in the China, as compared with a much lower
42 per cent in all global locations.
These facts are particularly significant because of
the nature of US multinational operations in China.
There is a perception that China, with its large reservoir
of relatively cheap labour, is a target for relocative
investments by international firms. These firms, including
multinationals from the US, are seen as using China
as a low-cost production base for global markets,
including markets in their parent countries. And the
Chinese government is seen as exploiting this opportunity
by maintaining an undervalued exchange rate so as
to enhance the country's export competitiveness.
But what the BEA's benchmark survey has revealed is
that the large increases in the value added of US
multinational affiliates in manufacturing in China
''reflected expanded production to serve the large
and growing local market.'' About two-thirds of the
total output of US MNC affiliates was sold to local
customers in both 1999 and 2009. On the other hand,
the share of their output sold to U.S. customers declined
from 16.3 per cent in 1999 to 10.2 per cent in 2009.
So China's growth matters, since it is an important
market for US firms located there. And what is important
is not to look
to their return, but to ensure
that profits from China are used to invest in jobs
at home.
*This
article was originally published in the Triple Crisis
Blog http://triplecrisis.com/the-role-china-plays/
