World's second-largest economy still faces obstacles

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Posted: Saturday, May 18, 2013 12:00 am

China, touted by economic developers as Nebraska's trading partner of the future, is full of promise but still struggling with Third World problems.

“There is a lot of work to do on China's economy,” Yining Li, a professor at Peking University and adviser to the national government, said Friday at the University of Nebraska at Omaha.

About 150 people packed an auditorium at UNO's Mammel Hall for an up-close look at Nebraska's fourth-largest trading partner, the second-largest economy in the world, but one still struggling with poverty, Communist property laws and a reputation for launching cyberattacks on Western computer networks.

Nebraska has made a major push to increase trade with China. Last year, Gov. Dave Heineman led a trade mission there, accompanied by state officials and business leaders. Since, the state has opened a permanent trade office in China, and says six Chinese companies are now operating in Nebraska as a result of recent recruiting and economic development efforts.

The speakers panel at the China Sustainable Growth conference Friday was august, including Li, who was introduced as the “most influential economist in China.” Also speaking was 1996 Nobel laureate in economics James Mirrlees, a professor at the Chinese University of Hong Kong.

Li said the problems facing China include a widening gap between urban and rural incomes — as big as 5-to-1 by some estimates. Adult rural illiteracy, he said, runs at 20 percent. Flocks of people, Li said, are cramming the cities, much like in America more than 100 years ago. Entire families, he said, are living in rented basements, erecting makeshift walls.

Also similar to America's period of industrial formation, the city newcomers find themselves at the mercy of the job creators — in this case, Li said, major companies operating factories and offices in the prosperous coastal cities.

“In Western countries, there are unions to protect employees,” Li said, speaking to the audience through an interpreter. “In China, we have never heard of unions.”

All land remains owned by the state or collectives. Farmers and businesses contract with the state or collectives to use the land but have no rights to transfer it, rent it or obtain loans using it as collateral, Li said. Reforms have encouraged substantial business investment, but the country is still ruled by the Communist Party of China; major restrictions exist on freedom of the press, religion and assembly.

China's 2012 gross domestic product per head was $6,000 a year, according to the International Monetary Fund, 86th in the world, behind Iraq and ahead of Turkmenistan. The United States ranked 11th, at $49,900, with Luxembourg first, at $107,200.

Still, China's economy is booming. Consumption is still growing at about 7 percent a year, down from the double digits of years past but still higher than other huge emerging nations such as India, said Mirrlees, the Nobel laureate. Savings rates are high, and China now ranks as the world's second-largest economy, behind the United States.

“The population is thrifty,” said Mirrlees, who received the Beacon of Ethics Award from the Greater Omaha Alliance for Business Ethics at Creighton University during the conference.

Some of that capital has wound up invested in the Cornhusker State, encouraged by the Nebraska Advantage Act. The law offers tax credits in return for initial project investment, capital purchases and job creation. Companies have to create a certain number of jobs to qualify for the sliding scale of credits.

Among the companies lured is Easyway International, a freight broker and maker of bathroom and bedroom textile products that opened in La Vista in 2010. The company also received $500,000 in block grants originating with the federal Department of Housing and Urban Development.

Easyway now employs 15 people, the minimum needed to fulfill the grant parameters, said Tracy George, vice president of textiles and trade.

“We are doing well, our obligations have been fulfilled,” George said. “Overall, it has all been very successful.”

In Beatrice, Worldlawn Power Equipment has about 30 employees designing, selling and manufacturing lawn mowers and other landscaping gear.

“We have doubled our sales from last year, “ said President Hardy Shao. “And the company is in the black. Our goal is to reach $100 million in sales in four years.”

Trade with China, according to the governor's office, has more than doubled in the past five years. The main export products are processed foods, machinery and chemicals. The exports amounted to $380 million in 2011, according to the Commerce Department. U.S. beef is still banned.

The incentives that helped land Chinese businesses in Nebraska — and which are also available to businesses elsewhere — are not without controversy. State Sen. Paul Schumacher of Columbus said in an interview this week that two bills are pending that would require greater disclosure about incentives. Schumacher said he doesn't know if the cost per job on the incentive programs is the equivalent of a used car or a new house.

“Estimates have ranged that incentives we offer cost from $11,000 per job to $235,000 per job,” he said. “Somehow I hope we can get to the bottom of it.”

Schumacher also said government incentives create market anomalies. “I suppose that if you gave a big enough incentive, you could get an ethanol plant in New York City.”

Not so fast, said Joe Chapuran, international development manager at the Nebraska Department of Economic Development. China's emergence means its investors are going somewhere, so why not Nebraska?

“As Chinese companies are looking to go global, we want to be in front of them to think of Nebraska as the place to do business,” he said. “With Nebraska offering comprehensive incentives, a specialized team offering assistance in entering the U.S. market, and a recently opened China trade office, they see the advantages of coming here.”

Wei Zhang, lead economist at Hong Kong-based property developer HKR International, told the conference audience the roots of Chinese overseas investment started in 1978, with a glacial change away from a doctrine that elevated collective agrarian pursuits and suppressed many others. Imports and exports skyrocketed starting in 1980, Zhang said.

The United States, he said, is China's largest export customer, the key to maintaining the Asian nation's trade surplus. The United States imported $426 billion of goods from China in 2012, or about $100 billion more than the runner-up, Canada, which is about 5,400 miles closer.

“The United States is the country against which China does not dare use trade as a weapon,” Zhang said.

Others do not consider all of China's exports entirely peaceful. The country this year was named a hotbed of cybercrime by U.S. security consultant Mandiant. This month, the Pentagon accused the Chinese government of cyberespionage, saying the Asian nation's military has targeted U.S. government computers.

The Chinese government has vigorously disputed such claims, saying both countries are subject to attacks by computer criminals and that the nation's military has never supported cybercrime.

Such concerns were far from the agenda Friday, when the promise of further cooperation dominated the day.

“Business is not warfare,” said Li, the Peking University professor and adviser to his nation's government. “In war, one side has to defeat another. In business we can have win-win.”

Contact the writer: 402-444-3133,

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