Expert View: China's rapid growth is giving Wall Street the jitters

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The Independent Online

"You make me think of Engels on Manchester." New Yorkers can be overbearing when discussing the global financial dominance of their city, you have to be ready to throw grenades in their path.

"You make me think of Engels on Manchester." New Yorkers can be overbearing when discussing the global financial dominance of their city, you have to be ready to throw grenades in their path.

At a Park Avenue party where it seemed you had to run a hedge fund to get an invite, the Big Apple hype was getting out of control. My point on Engels is that he described a city at the height of its economic power, where the wheels of commerce turned 24/7 and money was the only thing anyone talked about. Sound familiar?

The exponential growth of the Chinese economy has ensured that China is the "hot topic" at such knees-ups. China now dominates most capital markets, whether equities, commodities or currencies. But the greed this has inspired is tinged with fear.

It is predicted that by 2020 the Chinese economy will have overtaken that of the US, and by 2050 it will be almost one third larger. You can imagine how this is going down in the "proudest nation on earth". Having gone through the China fever in the mutual funds market, Americans are now suffering from a related myopia - China fear.

Take the numerous scare stories about the threat to US capitalism posed by Chinese fake branded goods. One US manufacturer of upmarket golf clubs complained how a new $1,600 (£830) product was ripped off by a Shanghai counterfeiter armed with three-dimensional technology in a week. The Chinese club reportedly came on the market at $1,200 and cleaned up.

One recent US article claimed that some $512bn, between 5 per cent and 7 per cent of total worldwide branded goods, were fake, nearly all of them made in China. Ridiculous. That figure represents almost the entire value of Chinese manufactured goods. China fear is clearly becoming an epidemic.

This perhaps explains some of the US administrations extreme sensitivity on China related issues, such as the EU's proposal to end its ban on arms sales there. The US has threatened to penalise any company which dares to do such business in China, and to review all collaborative arms projects with European corporations. BAE Systems has been quick to say that in consequence it will not seek any Chinese deals: its US business is worth £3.8bn and 27,000 jobs.

The US is not the only country threatened by China's awakening. One of China's largest car makers - the Shanghai Automotive Industry Corporation - is due to sign a joint venture with MG Rover in the next few weeks. This aims to secure the kind of technology transfer to China previously only permitted by Western manufacturers when under licence and when aimed only at the Chinese market. Not the other way around.

A sign of things to come? Perhaps all Western car makers will some day find China's cost advantages bearing down on them. The cost of labour of a tyre made in China is just 4 per cent; in the West it is normally 30 per cent.

Surely, not just for Americans, but for all Western manufacturers the long-term future is clear: until Chinese labour costs match Western levels - and that must be decades away - only the highest value goods can continue to be made in the West. Together with the service industries, this must be our future.

Among the sea of Wall Street hedge fund managers at the party, one figure stood out. To my delight, I discovered she was a toy maker, and owned a company that made wooden toys for pre-schools. She had just returned from China, where she'd been organising the outsourcing of her manufacturing process, with the loss of 150 jobs, while keeping design and distribution in the States.

Like it or not, the toy maker's story is America's future.