Even closet-dwellers couldn’t have missed China’s rise to global prominence. The 2008 Beijing Olympics showcased a country that has made tremendous economic progress. Millions of Chinese citizens have risen out of poverty, and the country’s city skylines continue to grow at an exponential pace. President Obama’s November 2009 visit to China further focused American attention across the Pacific, propelling the evolving U.S.-China relationship into a topic of everyday conversation.
Not everyone is happy about the rise of China. Many Americans fear that China’s growing status means the end of America’s reign as the de facto global leader. Others argue that American reliance on China for manufacturing our products and keeping interest rates low by purchasing U.S. debt is far too great. Still others accuse China’s government of continuing to deny its citizens political and personal freedom, even as democracy has grown across the world.
In Superfusion: How China and American Became One Economy and Why the World’s Prosperity Depends on It, author Zachary Karabell argues these worries miss the point. In fact, it is not just in the past few years that China has become relevant on the global scene. Karabell asserts that China and America have been intertwined for far longer than we realize; we simply haven’t been looking at the relationship from the right perspective. By taking the reader through the past twenty years of Sino-U.S. ties, Karabell shows that the synthesis of two of the world’s most important and influential economies has not happened overnight.
Karabell credits Deng Xiaoping as the major catalyst for the growth and emergence of “Chimerica” (a term initially created by historian Niall Ferguson and economist Moritz Schularick in 2006). Deng shrewdly understood that the relationship between the Communist Party and the people would be strengthened if poverty could be alleviated. Therefore, he did away with the collective farming system, helped initiate reform of and partial privatization of state-owned enterprises, and most importantly, allowed for the creation of special economic zones along the southern coast of China. These zones were open to foreign investment and businesses there enjoyed special tax and other privileges. Following these reforms, peasants were increasingly free to leave the fields in favor of factory work, leading to a growth in urbanization and the consequent expansion of China’s economy.
Karabell also sees the Tiananmen Square protests and their suppression as pivotal towards the synthesis of China and America’s economies. He argues that after June 4, 1989, the government insisted that economic progress, not political liberalization, was China’s way forward. Dollars, not democracy, would form China’s future, where mass consumerism and communism could successfully go hand in hand.
After laying out the grounds on which China was able to achieve such profound economic progress, Karabell uses the successes of specific American companies in China to illustrate the binding together of China and America. These companies paved the road for other American companies to head over to China, and additionally propelled consumerism within the country.
Kentucky Fried Chicken (KFC) is Karabell’s opening example. “The sudden appearance [in 1987] of a three-story, brightly lit, gleaming, and clean KFC outlet was an alien experience, welcomed as a novelty and as a symbol of everything Deng Xiaoping had been advocating. People went not because they liked the food; they went because they wanted to take in, literally, an experience of the modern world that China was rapidly, eagerly, and adamantly trying to enter.”
Avon Cosmetics also did well in China, and Karabell points out that the key to these two companies’ success was their ability to adapt. Instead of simply dropping their American approaches into China, these companies were flexible. They altered the way they did business in order to satisfy their Chinese customers. For example, Avon took specific steps to brand itself as “a company that made Chinese products” by implementing its own domestic supply chain in China. In addition, Chinese Avon saleswomen were encouraged to sell to their friends and family first, a smart move since business transactions in China are historically and culturally based on familiarity and trust. In KFC’s case, due to a lack of local Chinese business talent, the company made a shrewd choice to hire store managers from Taiwan instead. Although Karabell dubs this decision as “insane” due to the lack of diplomatic relations between the two countries, the managers from Taiwan were far more in tune with the Chinese consumer mindset than American managers could have been. In addition, they were given relative freedom to further market the brand, negotiate new store locations, and adapt KFC to the China landscape. Following the achievements of American companies such as these, international awareness of China’s untapped business potential increased.
As the years passed, more and more foreign companies were attracted to China. FedEx initially went to China to help out Western companies who needed help transporting their goods to a burgeoning market. However, Karabell explains that what made companies like FedEx especially successful were their significant investments in China. Many people think that American companies went to China and easily reaped rewards from the country’s growing potential, but in fact, profitability of China operations was rarely achieved overnight. By investing in China with a long-term view in mind, FedEx actually helped provide some of the much-needed capital that would allow China to modernize and develop in the first place. Consequently, it was because of their investments that the company was able to do so well in the first place. Thus began a tight and symbiotic U.S.-China relationship. American companies learned to invest their time and money in China, and in return, Chinese customers became huge consumers of the goods American companies could churn out.
Karabell writes that Americans have been oblivious to this fusion of Chinese and American companies. He attributes this to a number of different explanations with equally strong reasoning. One is that Americans have a nation-state mindset and assume more separateness than in fact exists. Another reason is the absence of data proving that China and America are a single economy, and this is due to how economies have traditionally been measured. Karabell writes, “What we have is a world where thousands of highly skilled, educated economists and statisticians collect and process substantial amounts of data on behalf of hundreds of governments and tens of thousands of companies and non-governmental organizations, yet almost no one analyzes the global economy as a system.”
Moreover, the U.S. was preoccupied with fighting terrorism just as China joined the WTO and its exports to the U.S. took off. “All of these myriad factors explain how it is possible for China and the United States to have converged over the past 20 years with hardly anyone noticing. No one is paid to notice; no one has developed theoretical frameworks that would predict it; and almost everyone still thinks of China and the United States as two distinct countries with two sovereign national economies.”
With the “us vs. them” rhetoric, where we look at statistics such as exports and imports to measure our status as a nation, we fail to notice the web of relationships we share with China. Thanks to the rise of information technology, companies and supply chains have expanded globally and can keep track of their inventory and transactions in other countries. Karabell explains that an American company such as General Electric or Motorola could be producing goods in a Chinese factory and export it through China, but it may not even be classified as a Chinese import. It would help if we knew exactly how much of China’s exports to the U.S. wear U.S. brand names – that is fusion; that is the joining of U.S. capital and technology with Chinese labor and production. In response to this lack of information, Karabell explains that due to years of looking at statistics in a binary fashion, it is impossible to account for the convergence of companies and interests that came together to produce the goods.
While the U.S. is incredibly reliant on China for producing goods, buying goods, and saving us from an even deeper recession, China is also incredibly reliant upon the U.S. as well. By investing in the U.S. and buying treasury bonds, they are tying their fortunes with ours. As Karabell states bluntly, “They cannot afford for the U.S. to fail.” In an interview with Newsweek, Karabell added, “It's also a relationship that sees China depending very heavily on U.S. intellectual know-how on setting up business systems and frameworks. That doesn't show up in trade statistics, but so much of China's growth over the past 20 years has been a product of utilizing and adapting American intelligence to fuel that economy.” Reliance of one country on the other is therefore very much a two way street.
Karabell concludes the “marriage” of China and America is so close that a divorce of any kind would be impossible. In July of 2008, the Discovery documentary People’s Republic of Capitalism offered a similar argument for an economically-joined China and America in its first episode, “Joined at the Hip.” It’s clear that a strong and obvious line of reasoning for “fusion” exists, and Karabell spends the majority of his book describing the development and evolution of this relationship. But perhaps the bigger and more relevant question now is what makes this fusion “super” rather than just fusion. What does this interconnectedness bring, and why should we care?
Karabell addresses this question by saying that China has to take a step up and realize it is no longer a developing country striving to equal its Western rivals. It is a global player and must recognize the responsibility that comes with that status. Conversely, America must humble itself and be willing to work more cooperatively with China or other countries as opposed to dictating them. Karabell might oppose a hard U.S. line on climate change or internet freedom. What he does clearly suggest is that progress should be made so that policy can be mutually decided, and while talks between the two countries are improving, he says, “It’s different than officials of the Federal Reserve and the People’s Bank of China sitting down and deciding jointly on interest rates. As unthinkable as that is now, the fusion of the two systems may soon demand it.”
The real question about China and America that has yet to be answered is not which country is greater than the other or whether or not the countries are interconnected. The question of who’s superior to the other is beside the point, and the issue of interconnectivity is already a sure bet. Simply put, China matters to the U.S., and the U.S. matters to China. For the U.S., China is simultaneously seen as a threat to our economy and a source of growth for U.S.-based firms. In China, controversy over U.S. government debt is growing as officials have become worried about the value of the dollar, and some generals have even advocated selling U.S. debt to punish the U.S. for arm sales.
Headlines concerning U.S.-China issues such as these and more are gracing newspapers and websites around the world at astonishing speed, and it looks like there will be no let-up anytime soon. Ultimately, the argument for U.S.-China fusion that Karabell raises is not entirely new. However, Karabell’s book is an easy, enjoyable read that provides compelling examples that illustrate how this convergence came to be and why it matters. Perhaps most importantly, what his book leads us to ask ourselves is how we should embrace this convergence of two countries and utilize it towards the benefit of greater global prosperity.
Zachary Karabell is President of River Twice Research, and a Senior Advisor for Business for Social Responsibility. Previously, he was Executive Vice President, Head of Marketing and Chief Economist at Fred Alger Management, a New York-based investment firm, and President of Fred Alger and Company, as well as Portfolio Manager of the China-US Growth Fund, which won both a Lipper Award for top performance and a 5-star designation from Morningstar. Along with Superfusion, Karabell has authored several books, including Peace Be Upon You: Fourteen Centuries of Muslim, Christian, and Jewish Conflict and Cooperation and Parting the Desert: The Creation of the Suez Canal.
Jasmine Ako is an undergraduate at USC studying business and Chinese. She is a deputy editor at US-China Today.