CHINESE tanks and missiles rolled past the reviewing stand in Tiananmen Square, where I sat as a member of the foreign press corps in early October 1984. It was the annual National Day parade, and a phalanx of soldiers marched smartly by. So far, nothing out of the ordinary.
Then came a group of apple-cheeked students, waving and brandishing a sign with enormous Chinese characters: “Hello, Xiaoping,” it said, in a startlingly warm and casual salute to Deng Xiaoping, then China’s paramount leader. Years before the brutal crackdown on demonstrators in that very square, Deng was being celebrated for his advocacy of a new path of market reform, openness to the outside world and, eventually, prosperity. It was an unorthodox approach, exemplified by the bold, decidedly un-Maoist slogan, “Let some people get rich first.”
After following Deng’s economic path for decades, China has been watching its prosperity rise. And foreign politicians, corporate executives and investors have taken notice. Last week, in meetings with political and business leaders during his American visit, Hu Jintao, China’s current president, was treated with the respect due a man who represents the second-largest economy on the planet.
In a joint news conference in Washington, for example, President Obama chided him about human rights issues, but did so gently, moving rapidly to a much happier subject: business. “We want to sell you all kinds of stuff,” Mr. Obama said to Mr. Hu. “We want to sell you planes. We want to sell you cars. We want to sell you software.”
And Mr. Hu indicated that he was happy to oblige.
In Washington and in Chicago, the Chinese president and his entourage announced a series of deals that, American officials said, amounted to $45 billion worth of American exports to China. Included in that total was $19 billion for 200 Boeing airplanes, plus railway and energy contracts for General Electric, and a joint venture between Honeywell and Haier, the giant Chinese appliance maker.
America’s current $100 billion in annual exports to China “supports more than half a million American jobs,” Mr. Obama said, noting that those exports are growing at nearly double the rate of exports to the rest of the world.
Mr. Hu did not go to New York, but his American visit was duly noted on Wall Street and its environs. At Goldman Sachs’s headquarters on West Street on Thursday, Jim O’Neill, the chairman of Goldman Sachs Asset Management, said he believed that the world’s economic growth rate was rising sharply.
“At the core of all of this is the behemoth known as China,” he said, adding that it must be part of every intelligent investor’s long-term strategy.
Mr. O’Neill is perhaps best known as the economist who nearly a decade ago coined the acronym BRIC — for Brazil, Russia, India and China — developing economies that, he said, were big enough and growing rapidly enough that no investor could afford to neglect them. The giant in that group is still China, he said, whose transformation has been so thorough that “most people, and not just investors, don’t realize the sheer dimension of its rapidly growing importance in the world economy.”
Given its current size and growth rate — a sizzling 10.2 percent in 2010 — China’s economy is likely to add roughly $1 trillion in G.D.P. in 2011, he said. To put that into perspective, he said it is “sort of like creating half of a United Kingdom.” Over the last decade, he said, China’s economy “has created three United Kingdoms, and that’s really extraordinary.”
What’s more, China still has a long way to go. In one 2009 World Bank ranking of per capita income, China fit snugly between Tunisia and Turkmenistan. In some respects, it remains at a relatively early stage of economic development.
Many unresolved issues plague the Sino-American relationship, of course — including disputes over human rights, intellectual property rights, access to domestic markets, the proper valuation of the renminbi, an imbalance in trade and capital flows, and a host of geopolitical problems. The economic flashpoints alone could easily flare into open conflict.
The United States Business and Industry Council, for example, which represents family-owned domestic manufacturing businesses, argues that President Obama should stop negotiating with China and start imposing taxes and tariffs. “We need to contain China’s economic strength and to reduce China’s military strength,” said Alan Tonelson, research fellow at the council.
Mr. O’Neill, by contrast, points to the rich earnings that multinational companies like I.B.M. are garnering from sharply rising exports to China. “The notion that China grows at everybody else’s expense is at least three years out of date,” he said. China’s rapid growth, he said, gives the United States economic recovery a very good chance of being more robust than expected over the next few years.
FOR investors, the short-term implications of the China growth story are not entirely straightforward. The Chinese stock market has had a bumpy year, and it may continue to be buffeted by the Chinese central bank’s tighter monetary policy, which is aimed at reining in inflation. It’s quite possible that the stock market in a slower-growing economy like Japan’s will be more profitable for investors over the next year, according to a recent analysis by Bank of America Merrill Lynch.
In any case, Mr. O’Neill said, investors can benefit from China’s growth in multiple ways, by assessing valuations of specific stocks and assets, for example, and perhaps by betting on multinationals with significant China exposure. For a while to come, he said, the economic tide in China will rise, and investors should take note: some will be getting rich first.
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