Emergence as a Global Economic Power } 677
materials along with high-quality managerial and engineering skills—all
essential to manufacturing the innovative and high-tech products inno-
vated and designed in North America and Europe. The technology and
knowledge-intensive inputs of North America and the precision parts and
components produced in the earlier East Asian industrializers were then
shipped to China, where they were assembled utilizing the advantage of
China’s cheap labor and low land costs. As the 1998 PRC White Paper on the
Sino-US trade balance put it:
Processing trade expansion is a major factor behind China’s export
growth in the 1990s. ... In the 1990-96 period, the ratio of processing
trade to overall Chinese exports rose from 41% to 55.8% and even
amounted to 70% ... of China’s exports to the United States in 1996. The
bulk of the sector has developed since the mid-1980s, when investors
from developed countries including the United States and Japan as well
as Singapore, the Republic of Korea, ... Hong Kong and Taiwan ... started
to move their labor intensive industries or production procedures
to China in a bid to cut production costs and enhance international
competiveness.^5
This international division of labor was, of course, not simple or static.
There was intense competition between and within each pole of this divi-
sion of labor. Regarding the PRC, its leaders feared that if China were locked
into its current role as a low-cost manufacturing base for high-tech products
invented and designed elsewhere, this would consign China to continuing de-
pendence on the innovations and intellectual property rights of the advanced
countries. It could also mean that China might become “stuck” in a mid-range
of income, with its industries adding only modest value by final assembly to
science and knowledge-intensive products and components invented in the
high-income countries. If this occurred, China’s leaders feared it might not
reach its goal of becoming a leading world power.
A key mechanism of China’s post-1978 economic rise was this: export
growth produced foreign currency, which then, via regulated allocation by the
state, financed the import of technology. Export promotion and technology
acquisition: these are two key international mechanisms of China’s economic
rise. Technology was often a key component of foreign direct investment into
China, and went, in turn, into the production of exports. A key international
dynamic of China’s post-1978 economic rise has thus been:
Export
growthTechnology
transferForeign currency
earningsForeign direct
investment