Why China Can't Create Anything

The country is getting rich but unless it can learn to innovate, its economy will never overtake the United States

Tony Law / Redux

A Foxconn plant in Shenzhen, which puts together, among other products, the iPhone.

Is China an unbeatable industrial juggernaut that will steamroll the U.S., stealing our jobs and depressing our wages in its relentless quest for wealth and power? Or is it the world's biggest opportunity for U.S. corporations, a honeypot that will enrich our firms and make us more prosperous as a result?

Those are arguably the two biggest questions in the global economy right now. With the U.S. growing at a sluggish 2.5% and Europe doing even worse, all eyes are on China as the world's growth engine. China's 1.3 billion upwardly mobile people are voracious consumers of everything from cars to smartphones to Kentucky Fried Chicken. Through its relentless exports, China has amassed a mountain of cash reserves and made itself Washington's biggest foreign creditor.

However, the country that vacuumed up factories to become the Workshop of the World is a victim of its own success. Decades of nonstop growth have forever altered its place in the global economy and changed how it must compete with rich nations like the U.S. and emerging economies like India. The tools that China has used to spark its economic miracle — government support, cheap labor, state-directed finance — cannot ensure its future. The country can no longer rely on just making lots of stuff; China has to invent things, design them, brand them and market them. Instead of following the leaders of global industry, China has to produce leaders of its own.

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