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America's Economic Edge -- and the Olympics

In enumerating China's many strengths, we tend to downplay, or completely overlook, ours. China can't produce most of the modern goods and services it needs to grow its economy.
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My last two postings were based on a premise which had folks asking me what part of my duodenum I extracted it from.

The gist -- that American industry and labor have a significant competitive edge over China that we tend to overlook. And that we have this edge at the precise moment when China needs our goods and services more than ever before. Which adds up to a once-in-a-century windfall opportunity to create jobs and build value here at home.

Now my duodenum has definitely played a role in shaping my perspective here. Doing business on mainland China for over a decade has turned my once sprightly GI tract into the Chernyobl reactor.

That said, in the way of a meager defense, I've done a whole lot of gumshoeing in-country since founding my company there over a decade ago.

To launch the biz, our team of engineers and analysts gave over 600 Chinese factories the equivalent of a full body cavity search. We appraised the equipment and systems, and we conducted in-depth interviews of all department heads and many personnel.

Our inspections had a purpose. We sought to map the flow of goods and materials from their initial raw material form all the way through to manufacturing and export. To form a clear picture of what the Chinese supply chain really looks like.

The investigation took over two years. And we learned some startling things. How long China's supply chain is. How error prone it is. How different China's conception of quality is. How vast the gap in skills. Even giants like Mattel and Baxter run aground on this reef.

Today, our network spans over 8,000 Chinese firms, which we leverage as an import and export platform for American small and mid-sized firms. Since we're responsible for all quality control, we've got a first-hand understanding of the real and current conditions on the ground.

So my duodenum aside, China's skills and capability gap is not based on a chart or a statistic from the U.S. Department of Commerce. It's an observable fact, when you work in the field.

Now the responses to the postings were right to underscore the strengths that China does possess, and they are many and formidable. And, yes, China is climbing the value chain as to what it can competently produce.

But we need to put these strengths in context -- the context of what it's really like to do business over there. The added risk and cost, the huge gulf in business culture, the wide gap in capability and capacity.

In enumerating China's many strengths, we tend to downplay, or completely overlook, ours. China can't produce most of the modern goods and services it needs to grow its economy. That's a key reason why China is increasingly turning to America to provide them, and why our exports to China keep booming year after year -- in industries that span our entire economy.

What does any of this have to do with the price of tea in China? Plenty. For one thing, the Olympic Games present America with a huge opportunity to capitalize on China's growth, as well as to affect positive change there.

When it comes to reform, China is sometimes the tortoise, and it's sometimes the hare. Usually, progress in China seems to move incrementally. But sometimes it throttles forward in an intense spasm of creativity and innovation.

China's accession to the WTO was such a time. The Chinese passed or re-wrote over 1,100 laws and regulations in order to comply with the demands of participating in this rules-based, multilateral organization. A gargantuan human undertaking.

The Olympics is also such a time. In the coming months, watch for China to make major moves in energy, politics, trade, and other key areas. The next post will focus on China's recent surprising moves in the energy sector -- and their impact on global warming and the price of gas at the pump.

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