Banging the Drum on China

NEW YORK — The chorus of voices complaining about China's trade practices has grown in recent months to include a diverse range of labor activists,...

with contributions from John Zarocostas

"There are some similarities in that there's a lot of symbolism," said ITG's Ross. "While all the complaints were going on about Japan, the fact is that we had a trade deficit not just with Japan, but with the rest of the world in total. China has become a big symbol. If you notice, even though our trade deficit with Japan has continued, nobody really says anything about a trade deficit with Japan."

According to Commerce Department data, the total U.S. trade deficit last year came to $651.73 billion. The U.S. ran a $75.19 billion deficit with Japan and a $161.98 billion deficit with China.

Consultant Ira Kalish, Deloitte Research's Los Angeles-based global director of consumer business, noted there are also important differences between the current Chinese and past Japanese economies.

"Back in the Eighties, Japan was criticized for closing itself to foreign penetration, to foreign goods, foreign investment, foreign companies," he said. "That's not the case with China. China has had huge growth in imports over the last couple of years. They've dramatically reduced trade barriers as part of their commitment to the World Trade Organization."

While China's government remains a one-party system controlled by a nominally Communist party, leadership in Beijing has demonstrated a clear enthusiasm for capitalism and economic liberalization, joining the WTO in 2001. A recent United Nations report noted that in 2003 and 2004, foreign-funded companies accounted for 57 percent of China's total exports, adding, "China continues to attract a large volume of foreign direct investment to expand its productive capacity in the export sector."

By way of contrast, Japanese firms in the Eighties largely rejected foreign efforts to buy stakes in Japanese enterprises. When they needed capital, they took on debt instead of seeking foreign investors. That left many firms burdened with heavy interest payments, a factor that contributed to the nation's prolonged economic slowdown.

Another more obvious difference between China and Japan is size. China's current population of 1.3 billion people is more than 10 times the size of Japan's.

"China has a tremendously large unemployed labor pool," said Bernard of Dartmouth.

To meet its obligations to the WTO, China is privatizing the state-owned corporations that were the backbone of its economy for the latter half of the 20th century. As those companies switch from a management model geared at maximum employment to the capitalist model of maximizing profit, each year hundreds of thousands of people are being laid off.

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