New high-tech superpower or US sweatshop?


In a move reminiscent to the 1947-89 Cold War, on June 15 Washington imposed a series of restrictions on the export to China of high-tech goods, including aircraft engines, high-performance computers and other technologies that might have military applications.

The June 16 Los Angeles Times reported that the US "Commerce Department added 31 products to a list that requires special export licenses in hopes of keeping them out of the hands of China's military. The licenses, which companies complain are complicated to obtain, are meant to ensure that technology sold to civilian firms doesn't end up being used to improve Chinese missiles and other weapons.

"Administration officials say they are trying to balance economic needs with growing concerns about the communist nation's rapid military modernization and access to advanced Western technology. But US businesses say the new rules, proposed last summer and sharply criticized ever since, won't be effective because many of the so-called dual-use products are easily available from other countries.

"All the regulations will do, companies fear, is drive away Chinese business when the US trade deficit with the world's most populous nation is soaring. It reached a record high of $233 billion last year...

"A spokesman for China's Commerce Ministry strongly criticized the proposal after it was announced, urging the US to drop its 'Cold War mind-set'."

The Bush administration's move however will undoubtedly please the growing anti-China lobby within Congress.

In recent years, this lobby has alleged that China is becoming a technological superpower, posing a challenge to US economic and military dominance.

To dramatise this "threat", the congressional US China Economic and Security Review Commission — set up in 2000 to investigate, analyse, and provide recommendations regarding the impact of China's rapid economic development on US "national security" — held a hearing in April 2005, inviting inputs from a range of "experts".

The alleged threat was given extra currency by a December 2005 report from the rich countries' Organisation for Economic Cooperation and Development (OECD) that noted China's exports of information and communications products soared 46% during 2004 to US$180 billion, outstripping for the first time the $149 billion of similar exports from the US.

Based on the OECD figures, the January 19, 2006 BusinessWeek warned that China was "gearing up to become a producer of indigenous technology and a global knowledge player of the scale of Sony and Samsung".

New "evidence" to support this claim was drawn from the December 2006 OECD prediction that China was expected to spend $136 billion on research and development in 2006, putting China second only to the US in total R&D spending. US spending was projected to be $330 billion in 2007.

But how many of the "made in China" labelled "high-tech" products are the result of Chinese R&D?

One of the myths peddled by the mainstream media and academics in the imperialist countries whose capitalist corporations dominate the production of advanced industrial technology is that within the global capitalist "free market" system all countries have an equal chance to develop their technological base.

The "new industrialising economies" of north-east Asia, nicknamed the "Dragons"(South Korea, Taiwan, Hong Kong and Singapore) — were held up in the early and mid 1990s as examples of this, with a number of south-east Asian countries — the "Tigers" (Malaysia, Thailand, Indonesia, the Philippines) — set to follow in the Dragons' footsteps.

Proponents of the myth ignored the dependent nature of the Dragon and Tiger economies on imports of high-tech inputs from the imperialist countries, particularly Japan and the US.

A key indicator of this dependency is the role that parts and component (P&C) production played in the Dragon and Tiger economies.

According to the 2006 study "Production Fragmentation and Trade Integration" by Australian National University researchers Prema-chandra Athukorala and Nobuaki Yamashita, the P&C share of South Korea's manufactured exports increased from 17% to 26% during the 1992-2003 period, while P&C's share of South Korea's manufactured imports rose from 25% to 34%.

A similar trend occurred in Taiwan over the same period, with P&C's share in the island's manufacturing exports soaring from 28% to 40%, while its share of Taiwan's manufacturing imports jumping from 17% to 37%.

The P&C import dependency was even starker for the ASEAN Free Trade Area (a 10-country group of which the Tiger four and Singapore carry most economic weight). P&C accounted for 41% of this bloc's manufactured exports in 2003, rising from 25% in 1992. P&C also accounted for 47% of this group's 2003 manufactured imports, rising from 28% in 1992.

Royalties and licensing fees for intellectual property are also useful indicators of a country's technological dependency or independence.

According to the US National Science Board, the US has traditionally been a net exporter of intellectual property, reaping a surplus of $22.3 billion in 2001. Asia accounted for the biggest share of US trade surplus in this field, with Japan and South Korea alone contributing to 54% of US trade income in intellectual property in 2001.

China has been reintegrated into the global capitalist economy over the last 15 years as a supplier of huge amounts of cheap labour for First World corporations to carry out final assembly of manufactures that they sell in the consumer markets of the rich countries.

A June 2006 study — "The emergence of China and its impact on Asian trade" by Guillaume Gaulier, Francoise Lemoine and Deniz Unal-Kesenci, printed in the China Economic Review No. 18 (2007) — pointed out that since the early 1990s P&C has been the fastest growing category in Asian trade, accounting for 31% of intra-Asia manufacturing trade in 2004, up from 18% in 1993.

According to the study, foreign-invested enterprises (FIE) accounted for 60% of China's foreign trade in 2005, and that 80% of these firms' export activities "comes from assembling and transforming imported inputs".

"In 2003", the study noted, "about two-thirds of China's trade with Japan [a source of critical high-value P&C] and the Dragons were carried out by foreign-invested firms, suggesting that China's bilateral trade with these countries heavily relies on intra-firm trade."

While China has a growing trade surplus with the US, reaching a new record of $232.7 billion in 2006, it has a rising trade deficit with the rest of Asia, growing from $6 billion in 2001 to $72 billion in 2005.

The February 9, 2006, New York Times noted that the East Asia regional manufacturing supply chain "can render global trade statistics misleading", and some experts say that a more apt label would be 'assembled in China" than "made in China" for most consumer durables exported from China to rich country markets.

"The biggest beneficiary of all this is the United States... A Barbie doll costs $20 but China only gets about 35 cents of that", a Union Bank of Switzerland economist in Hong Kong told the NYT.

In a September 2006 speech, Fu Ying, China's ambassador to Australia, observed that for "DVD sets made in China, after paying for the cost of patent and parts, we make one dollar per piece for processing".

The NYT report continued: "American transnational corporations and other foreign companies, including retailers, are the largely invisible hands behind the factories pumping out these inexpensive goods. And they are reaping the bulk of profits from the trade."

The same reality lies behind China's "high-tech" exports, such as information technology (IT), electronics and telecommunications products, which are an increasing proportion of China's exports. As the November 22, 2006 Asia Times Online (ATO) observed: "This sounds like a significant move up the value chain for China... Yet there is, from the perspective of China's development objectives, a problem: it is the foreign companies, not Chinese manufacturers, that dominate almost all aspects of the computer industry and capture its earnings."

The report pointed out that the global computer industry "is configured as a pyramid. Microsoft and Intel sit at the top, rich in intellectual capital and flush with profits. Below them are the global PC brands — Dell, Apple, Hewlett-Packard, Sony — which turn a profit through ruthlessly efficient product sourcing and massive investment in marketing.

"They are supplied with near-finished goods by Taiwan ODMs [original design manufacturers] with factories on the mainland [of China] that receive components, in turn, from thousands of small manufacturers, many of them also Taiwanese-owned."

"The big winners in the industry are the American companies, especially Microsoft and Intel. The Taiwanese are making peanuts, with net profit margins of just 2-3%", Tony Tseng, a Merrill Lynch analyst in Taipei, told ATO reporter Tom Miller.

Miller asked Tseng if China could climb up the technological ladder. Tseng responded: "No, it's too late… The market is too mature for new players to enter. The only value added by China is the efficiency it brings to the assembly process, not its own technology."

In an article in the July-August 2004 Foreign Affairs, the magazine of the US ruling elite's Council on Foreign Relations, George Gilboy, pointed out that while China's exports of industrial machinery grew 20-fold in real terms from 1993 to 2003 to $83 billion, the FIE share in it rose from 35% to 79%.

Similarly, while China's exports of computer equipment jumped from $716 million during the same period to $41 billion, the FIE share climbed from 74% to 92%. It's the same story with China's electronics and telecom exports. While these grew seven-fold during the period to $89 billion, the FIEs' share shot up from 45% to 74%.

Gilroy, described by FA as a "senior manager at a major multinational firm in Beijing", concluded: "Chinese industrial firms are deeply dependent on designs, critical components, and manufacturing equipment they import from the United States" and other First World countries.