The relentless progress of China is giddying, outrunning most of the superlatives we can apply to the place. Philippe Legrain's book Aftershock reports that China now exports every six hours as much as it did in the whole of 1978. I have been working on a new edition of my book, The Undercover Economist, partly because Chinese growth has shredded most of the first edition's statistics.
Should Chinese growth make us nervous? At first glance, the trade-off seems simple: Western consumers enjoy cheaper goods, but Western businesses have to compete with the "China price". Of course, capitalists will be capitalists, and so many business leaders instinctively feel that China must be a business opportunity. Peter Mandelson once cited a 19th-century commentator as opining that, "if everyone in China lengthened their shirt tails by a foot, the textile mills of England would spin for a year." That spirit is alive and well in European business today.
This is the right attitude, although doing business in China is hardly easy. (The World Bank "Doing Business" database lists 150 countries in which it's easier to set up a new business.) But the opportunities are there and they will grow.
But the most profound — and least obvious — change is that China transforms the internal dynamic of our other economies. A simple economic model may help to explain how this works. Imagine a Western economy (say, the UK) with 8 million workers producing 8 million nuts, while 4 million workers in the more productive bolt industry produce 8 million bolts — 12 million workers in total producing 8 million nut-and-bolt pairs. When the Chinese arrive, offering to sell two nuts for every British bolt, the British nut industry goes bust and the unemployed workers are hired by the bolt industry. The total output of the 12 million workers is now 24 million bolts, of which 16 million stay in the UK and the remaining 8 million are swapped for 16 million Chinese nuts. The British economy has twice as many nut-bolt pairs as before and just as many jobs.
(If a fiendishly gifted engineer invented a machine that would turn a bolt into two nuts or two nuts into a bolt, the story would hardly change. Rather than sending bolts to Grimsby to be placed on a boat to China, the bolt industry would pour them into the machine.)
This model oversimplifies, of course — not least, it leaves out the juddering shock of workers trying to switch from one industry to another. But it does make clear the fact that China is actually creating competition between domestic firms.
The nut industry might yell that cheap Chinese competition has put it out of business. That is true, in a sense. It is equally true to claim that it has been wiped out by the more efficient British bolt industry. While competing with Western businesses, China is also altering the playing field on which Western businesses compete with each other.
Tim Harford's latest book, Dear Undercover Economist, is now out in paperback.
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