Date: Oct. 5, 2018
By: Matthew C. Klein
We’re starting to see the implications of China’s lessening dependence on the rest of the world.
Chinese living standards plunged from about 50% of Western levels in the early 1800s to just 8% by the 1970s—a consequence of almost constant upheaval from war, colonialism, and revolution. By the 1980s, the Communist Party had concluded that stability was needed for development. In addition to ending the self-imposed chaos of the Mao era, this meant “keeping a low profile” in international affairs.
A peaceful external environment encouraged foreign investment in China’s productive capacity and ensured ample export markets for China’s new industries. Within the past few years, however, China has become markedly less dependent on the rest of the world. This may have altered its leaders’ strategic thinking.
Consider the recent allegations, reported by Bloomberg Businessweek, that the People’s Liberation Army had inserted specialized spying chips into motherboards bound for servers around the world. While the potential intelligence gains could have been enormous—Businessweek claims the tampered motherboards could have gotten inside the Central Intelligence Agency and onto U.S. Navy ships—the operation would have risked annihilating the commercial reputations of Chinese electronics manufacturers.
If the story is broadly correct, no respectable Western or Japanese company should be willing to tolerate any Chinese presence in its supply chain. Even though the cost of relocating would be incredibly expensive—American companies alone have spent more than $250 billion investing in China over the years—it would probably be worth the trouble to maintain customer confidence. That would leave many Chinese companies and workers in the lurch. [FULL STORY]