Book Review: China Goes Global by David Shambaugh

What people are saying about Mulberry Fields
“I have already learned a great deal about China and your business through your website and blog posts. Very impressive.” – a children’s products company in Toronto

In 1990 I moved to Pudong, a farming area on the eastern bank of the Huangpu River, the river which divides East from West Shanghai. This was a year before Pudong was declared a Special Economic Zone and I was one of only three foreigners living there at the time. 23 years later Pudong is China’s financial capital, boasts several of the world’s tallest buildings and it is home to many global companies. According to a 2011 China census there are now about 50,000 foreign residents in Pudong. So nowadays when people talk up China I am inclined to agree because I have seen the change first hand

In his book China Goes Global, the Partial Power, David Shambaugh, a China expert at George Washington University, acknowledges China’s epochal metamorphosis from one of the poorest and, some would argue, insignificant countries in the world to one of the wealthiest. He calls this transformation, as many have before him, the “big story of our time.” Yet Shambaugh does not subscribe to the hype about China’s global dominance, either present or forthcoming. He writes: “Some observers have already proclaimed that China will rule the world, This prospective is profoundly overstated and incorrect in my view. ……China has a long way to go before it becomes, if it ever becomes a true Global power. And it will never rule the world.”

Shambaugh argues convincingly that China’s global presence nowadays is in his words “shallow.” Not only does China not have strong international alliances, say the way US and other western Countries do ( Chinese strongest alliances are often with closed failed states like North Korea, and Russia), but China ranks very low on many surveys which measure a country’s global standing and effectiveness. Where other nations are committed to international humanitarian causes, the sole purpose of China’s global undertakings Shambaugh argues is to bolster its own economy and it seldom if ever takes initiative in solving global problems e.g. environmental problems.

And the Chinese economy is not what it seems according to Shambaugh. China’s global dominance in exports is largely owing to Chinese Government policies which have artificially given Chinese makers an advantage over manufacturers in other countries e.g. currency manipulation that keeps the RMB undervalued and subsidies of SOE ( state owned enterprises). Shambaugh also argues that China;s main exports are low-value consumer goods and that China lags far behind real global powers like the US and Japan in terms of exporting financial services and high value products. All of these are valid criticisms.

One reason that China has failed to export its financial services sector to other countries is that management in Chinese companies is often mired in inefficiency and lacks a true global mindset. And this explains why so many of China’s international Mergers and Acquisitions – a lot in recent years – are failing. I would have to say that I think Shambaugh is onto something here. Although I have seen China vendor performance improve over the last 20 years e.g. vendors are more upfront about their capabilities than they used to be, working with China vendors is half of the time an exercise in frustration. Vendors still refuse to take responsibility for a mistake, think nothing about misleading customers and if they do not like the project you are offering them they will simply not reply. In my own dealings with vendors in China I often feel that I am dealing with the same people I was dealing with 20 years ago. Progress can be very slow.

As I near the end of China Goes Global I find myself thinking back to a visit to Guangzhou a couple of years ago. I was standing at my hotel window one morning admiring the Guangzhou cityscape which seems to grow taller with each visit of mine to that city. On the expressway below me I spotted a car backing up on the shoulder of the road, an inherently dangerous maneuver. Obviously the driver had gotten off at the wrong exit and rather than get off at the next exit and go back, they had decided it was easier to back up on the expressway. I saw this vignette as being very emblematic of modern China: Progress all around but prevailing attitudes and customs which belie that progress. And this is Shambaugh’s point. China changes but it remains the same.

Still, in the end I am not sure that Shambaugh is not being a little reckless with his claim that China will never ‘rule the world.’ When he writes this I cannot help but think back that day in 1990 when I stood on the main road in Pudong and waited for over an hour for a bus that was not dangerously overcrowded (seven busses in all). If someone had told me as I waited on the dusty road where bicycles outnumbered cars 500-1 that in a space of 20 years Pudong would be one of the financial capitals of Asia ( where cars probably now outnumber bicycles 500-1) I would not have believed them. But it happened. So if China one day “rules the world” or does not, only time will tell.

Here are some of my other China book reviews:

Poorly Made in China
The China Price
China Shakes the World
The End of Cheap China

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