676 { China’s Quest
clearly moved up in the global hierarchy of power. In terms of size and level
of training of its diplomatic corps, supply of development assistance or subsi-
dies for companies supporting government policies, the volume and quality
of foreign information efforts, and not least, the quality and capabilities of its
armed forces, China is already perhaps the second-ranking state in the world,
second only to the United States.The East Asian Model and the Re-emergence
of Traditional EntrepreneurshipEconomic historian Thomas Rawski suggested that the underlying origins of
China’s remarkable rise were shared with other East Asian economies such
as those of Japan, Korea, Taiwan, and Hong Kong, and were rooted in a cul-
tural tradition of families formulating strategies for commercial success on
competitive and complex markets. Many of the developmental processes that
transformed China’s economy after 1978 were already clearly underway in the
decades before 1937 (the year the Sino-Japan war began), Rawski found, and
reemerged very quickly after 1978: swift dissemination of foreign-introduced
technologies and techniques to Chinese firms, development of financial and
transport systems to support competitive market transactions, inflow of for-
eign capital, and strong export growth based on intense specialization of labor.
Rawski suggests that in many ways the fecund East Asian commercial tradi-
tion was suspended in China after 1949 but was restored after 1978, allowing
these traditional strengths to re-emerge to propel China’s economic rise, just
as they propelled the economic rise of other East Asian late industrializers.^4
As China opened, its economy grew into a specialized international divi-
sion of labor between itself, the earlier East Asia industrializers (Japan and
the “Four Tigers” of South Korea, Taiwan, Singapore, and Hong Kong), and
the large, high-income, knowledge-intensive economies of North America
and Western Europe. Driven in part by revolutionary new technologies of
containerized movement of cargo and electronic information technologies
that drastically reduced the transaction costs of cross-border operations,
goods were increasingly produced in several countries. This combined the
specialized comparative advantage of several countries into what came to
be called trans-national production networks. Stated simply, the econo-
mies of North America and Europe innovated new products and held the
patents, copyrights, and brands along with knowledge/science-intensive
materials, technology, machinery, and components for assembly processes
that took place in low-cost late industrializers, especially China. The large,
high-income economies also functioned as consumers of the finished prod-
ucts of these global production networks. The earlier East Asian industrial-
izers supplied high-technology, high-quality, and precision components and