No longer focused on labor-intensive basics like toys and shoes, China is moving quickly into world leadership in products for high-tech sectors.
This year, China will pass the United States to become the world's largest exporter, said Ernest Preeg, an economist who is a senior fellow at the Manufacturers Alliance and a former deputy assistant secretary of state.
``There's never been anything quite like it before,'' said Preeg, speaking March 7 at the Plastics News Executive Forum in Tampa.
China opened up its economy in 1978 and became an exporting powerhouse built on cheap labor. But the move to become a world leader in advanced technology only began around 1995, he said.
``The Chinese government clearly has been pursuing this strategy, with a top priority in science and technology,'' he said. Another high priority is modernizing China's military, he noted.
China is moving aggressively. ``The last 10 years, Chinese [research and development has] been growing over 20 percent a year, compared with 5 or 6 percent in the U.S., Japan and Europe.''
Manufacturing is the central focus: More than half of that spending goes into manufacturing, and 70 percent of foreign direct investment is in the manufacturing sector, he added.
The country also is focusing on education. Preeg said China graduates six to eight times as many engineers as the U.S.: ``The numbers are just overwhelming.''
The Manufacturers Alliance in Arlington, Va., and the Hudson Institute last year published Preeg's book, The Emerging Chinese Advanced Technology Superstate.
In Tampa, Preeg said the No. 1 issue for China is whether there will be political change. A rapidly growing middle class and ongoing privatization will make it harder for the authoritarian government to run everything.
While there will be some protests and violence, he said, ``a major political upheaval - civil war, collapse - is not in the cards.''
But Preeg predicts changes:
* Financial sector reform.
* A shift from export-driven growth to growth driven by domestic Chinese consumption, as the government spreads jobs to the underdeveloped interior region. Preeg said China's current level of export is not sustainable.
* The Chinese yuan has to come down. Preeg thinks the yuan is 50 percent overvalued against the dollar - a far higher amount than many economists. ``It's way out of line,'' he said. He thinks China will do a 10-20 percent adjustment this year, then watch what happens. Once leaders see that this does not hurt China's export boom, they will loosen up the yuan even more.
* A revalued yuan and higher wages in China will squeeze low-skill, low-wage industries such as apparel and textiles. But more of that work will shift to poor countries in Asia and Latin America, providing much-needed jobs, said Preeg, who was American ambassador to Haiti in 1981-83.