Is it America's turn to learn from China?

By George Koo (New America Media)
Updated: 2009-01-07 15:09

On Jan. 1, 30 years ago, the United States and China resumed normal diplomatic relations—a culmination of the fence mending between the two nations that began with President Nixon's historic visit to China in 1972.

A simultaneous public announcement of the bilateral agreement came two weeks earlier. The People's Daily, the official newspaper of the government, rushed out a rare extra edition. The last time The People's Daily had printed an extra edition—with bold headlines and in red ink—was when China detonated its first atomic bomb 14 years earlier.

The reaction in Washington to the bilateral agreement was more muted. There was a perfunctory announcement. At the time, the United States was the world's largest economy and China was in the process of moving up from the world's 30th.

America's economic partners were Europe and Japan. China hardly made any difference. Today China is in a virtual tie with Germany as the world's third largest economy and holder of the largest amount of American debt.

How the United States chooses to deal with China now will make a world of difference.

Thirty years ago, no playbook existed on how to transform a state-planned economy to a free and open market. Deng Xiaoping was the paramount leader who saw that a normal relationship with the United States was essential to China's road to reform. He came to Washington that January to celebrate the newly established relationship, to don a cowboy hat and savor some Americana.

More importantly, Deng opened China to Western ideas. Measures of financial performance, articles of incorporation for a functioning enterprise, regulations governing joint ventures, guidelines for bank financing, taxation with incentives for new investments and many more ideas became part of China's legal environment. These were conditions necessary to attract foreign investment and encourage the growth of the private sector.

In 30 years, China's economy has increased by more than 30 fold. Few would deny that China's reform has been a spectacular success. It is the United States that is now at a crossroads and in need of drastic systemic reform.

While China's economic development has too short of a history to provide any useful lessons on bailing out a crashing economy, if Barack Obama were to visit China after the inauguration, he could find some fresh and useful approaches.

China has shown that step-by-step reform rather than sudden "big bang" reform—or deregulation in the case of the United States—proved to be the road to success. Applying this principle, Obama might follow gradual steps toward re-regulation.

If Obama wishes to see how infrastructure investments can act as stimulants to the national economy, all he needs to see is how the building of mass transit systems, airports, bridges, tunnels and super highways have benefited China's economy and its cities.

More importantly, Obama would see a China vastly different from the image portrayed in the West. He would see a nation of people working hard striving for a better life. He would see a society surprisingly free and open.

He would also see a country that shares many of the challenges and aspiration the United States faces. From anti-piracy off the Somalia coast, to security from global terrorists, stopping drug trafficking, pollution abatement, developing clean alternate sources of energy, and increasing drinkable water supply, China and the United States are facing common hurdles best overcome through working together.

By joining China in a true partnership, Obama's administration can leverage the relationship and accomplish the same goals at a lower level of national expenditure. By selling clean technology and other high-tech products, Obama can even generate more business for American companies.

Mutual trust and confidence would be built from increased contact and personal rapport between Obama and the leaders of China, and the hundreds of billions of dollars that the United States has allocated for advanced weapons development could be cut from the national deficit.

Dr. George Koo is a retired international business consultant and a board member of New America Media.