Golden years may await Chinese manufacturing
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HQ: What is the implication of US recovery for China?
Luo: China is very glad to see the signals of the US recovery. The trading partnership between China and the US is vital to both countries. Of course the US recovery may further strengthen this partnership and secure the benefits that it can bring to both countries.
The US obviously still remains at the top of the global manufacturing pyramid. But its advantages are shrinking greatly in relative terms in recent years, due to many factors such as mounting labor costs as well as the high returns from capital, which directed too many resources to financial markets.
China is striving to raise its position in the global competition, and has great potential. China's advantages include a large amount of foreign reserve, stable domestic financial markets and great potential for consumption. The challenge that it faces is economic transformation.
The gap between both countries' manufacturing remains an inevitable fact for the Chinese economy. Paradoxically, to some degree the gap rationalizes China's comparative advantages. However, the economic transformation that intends to narrow this gap will also be inevitable, as China's relative advantages in labor supply will gradually wane in the long run.
HQ: What is the possible path for the US recovery?
Luo: When US President Barack Obama offered an analysis of the US economy, he emphasized the role of manufacturing and exports to attain a sustainable growth. The rebuilding of manufacturing and re-industrialization all point to the same argument: the importance of the real economy as well as a healthy trading balance sheet.
There are other strategies that Western countries can adopt.
In recent years Western countries have been advocating and investing in the "low-carbon economy." Certainly slowing down global warming has an irreplaceable role in sustainable long-term global growth.
However, by outdoing other countries in this new field, Western countries can set higher requirements or conditions for developing countries. Developing countries will probably have no option but to accept these conditions including buying technology from developed countries. This process might feature political disputes and re-alignment.
