In This Review
China in the World Economy

China in the World Economy

By Nicholas R. Lardy

Institute for International Economics, 1994, 156 pp.

This dense, information-packed monograph can be rewardingly read on several levels. First, it explodes a number of myths about China, including the one that exaggerates the size of the Chinese economy. Second, there is an informative chapter on economic issues in U.S.-China relations. Third, in a stimulating concluding chapter, the author demonstrates that China is already more integrated into the world economy than Japan, Taiwan, or South Korea were at comparable stages of their economic development. More surprisingly, he argues that China, in some crucial respects, is more open than these other Asian economies. This greater integration gives China an enormous stake in the evolution of the world economy and has important policy implications for the United States.

Finally, Lardy's volume can be read as a potent critique of U.S. policy toward China. Instead of labeling China, along with Iran and Iraq, a backlash state, as National Security Advisor Anthony Lake labeled it recently, China should be treated as a potential strategic partner. And when China's behavior in human rights, nonproliferation, or other areas does not meet acceptable international standards, this should be addressed by multilateral rather than unilateral sanctions.

Most importantly, Lardy (like Bresnan) demonstrates the inadequacy of America's present and planned national export strategy. The proposed funding for the U.S. Export-Import Bank is far too small, much less than that offered by our Japanese and European competitors. The Clinton export promotion package does not include explicit bilateral aid for China comparable to Japan's. Moreover, because of foreign policy sanctions, low levels of official export finance, and regulatory burdens, the United States is losing huge amounts of potential exports worldwide. In 1989 alone, the United States probably missed opportunities for five to ten billion dollars worth of exports to China in such areas as chemicals, industrial machinery, electronic and electrical equipment, and transportation equipment, instruments, and related products. Lardy offers a number of sensible suggestions for revising the Export Administration Act, the single most important law governing U.S. export controls, and he offers a number of suggestions for promoting U.S. exports to China.

If the Clinton administration wants to develop a more coherent national economic strategy that promotes U.S. exports, as it says it does, it should ponder the ideas elaborated here.