"It is important to underline how important China is for the rest of the emerging market countries. Growth in Asia, Latin America and Africa has been bolstered by the growing demand for iron ore, copper and oil from China. If China succeeds in dealing with domestic challenges, that would also contribute to reviving optimism in emerging markets." ~ Anders Borg, former minister of finance of Sweden. 

 

The solution to the slowdown in the Chinese economy is often seen as the need to emphasize domestic consumption vs a previous emphasis on industrialization and exports. 

 

It is a geopolitical reality that China is vulnerable. China's trade can be easily choked at the Strait of Malacca and by its relative geographic isolation despite its New Silk Road efforts in the west, in what I call the "Tom Clancy Scenario." 

 

 

 

Chinese military initiatives in building reefs and shoals in the South China Sea and building its naval forces steals a page from Alfred Thayer Mahan's lectures at the US Naval Academy and are indicative of its geopolitical apprehension and concern. 

 

 I take a different view of what China needs to do economically and geopolitically. It is a qualitative view. Jack Ma has brilliantly led China's multifaceted geopolitical assault on the e-commerce front. Alibaba's combination of platforms with advertising, sales, marketing, credit scoring, financing, mobile payments, logistics has been brilliant. It is a virtual envelopment of global markets, a superb demonstration of the game of Go, the only game played more intelligently by human experts than by computers. It is also a geopolitical maneuver beyond China's confining geography. 

 

The albatross around Ma's neck has been what I call the Chinese "jump-on" effect. Chinese companies are notorious for marketing and selling counterfeit goods online, on Alibaba. Not only are these counterfeit goods not genuine, they also are very often of lower quality, giving the impression that China sells cheap goods of inferior quality. The US and Japan went through this. Deming, Juran and others taught the Japanese statistical quality control, an appreciation for gaining "deep knowledge" of processes and systems before changing them, before dealing with anomalies and variation. On this basis, Japan evolved and developed its own just-in-time innovations and many other better ways of using supply chains, information technology, manufacturing and distributing. The Japanese cultural love of perfection was allowed to blossom (Deming was awarded the Order of the Chrysanthemum). 

 

In the midst of China's economic struggles the West is facing its own apoplectic schism. How do we reconcile government organization and incompetence in an increasingly efficient, technological yet insecure world? If sensors are everywhere in the IoT economy, how do we maintain social and intellectual privacy and cybersecurity? If sensors are everywhere in the globe, why does terrorism exist? Can't we detect and anticipate it?

 

Germany and its mittelstand enterprises and mittelstand banking, the emphasis on manufacturing quality products and exporting them to an average of 6 countries, is also instructive for China. Mittelstand banks cater to the export finance needs of German firms and are in full support. The US SMEs, when they export (fewer than 1% do) sell to an average of 2 or 3 countries. Unlike the German, Chinese governmental policy of supporting exports to the hilt, the aristocratic if not plutocratic US Congress has severely compromised US export competitiveness with its phony and hypocritical charge of "crony capitalism" at the US Ex-Im Bank. I have explained separately how Congress and lawyers are killing US small business startups. This has been confirmed by the Brookings Institute. This is important because small business employs 70% of Americans. SME exporters provide higher paying jobs. 

In contrast to the US, after a concerted, national educational effort, Chilean exporters sell diverse goods to an average of 8 countries. 

 

The lesson for China's leaders in all this is clear. Exporting excellent products to a growing number of countries by excelling in e-commerce, creates sustainable economic growth and well-paying jobs. Which country does this not apply to?