Skip to main content

China's rise doesn't have to come at America's expense

By Vijay V. Vaitheeswaran, Special to CNN
updated 5:19 AM EDT, Wed March 21, 2012
Apple's flagship store in Beijing. Will America win the race on innovation?
Apple's flagship store in Beijing. Will America win the race on innovation?
STORY HIGHLIGHTS
  • Vijay Vaitheeswaran: Cheap China is fading fast, and innovative China is emerging
  • Vaitheeswaran: If America wants to stay on top, it needs to spur innovation
  • He says America needs better immigration policies to retain talents
  • He says Congress should pass a bill to make it easier to fund entrepreneurs

Editor's note: Vijay V. Vaitheeswaran is the China business and finance editor at The Economist. He is the author of "Need, Speed, and Greed."

(CNN) -- Travel to Shekou, a port city in Shenzhen, and you will find the stirrings of something unexpected: entrepreneurial capitalism.

This part of China, home to many mega-factories like those of Foxconn (which makes Apple's iPads) is known as the world's workshop. But if you visit Microport, a startup firm funded by venture capital, you will find a group of tech entrepreneurs with a global mindset trying to disrupt an overpriced, legacy-ridden industry (in their case, the one for medical diagnostics equipment). In the staff canteen hangs a portrait of the late Steve Jobs uttering his motto, "Stay hungry, stay foolish." Microport's dynamic founder says his dream is for China to become an innovation powerhouse that produces its own homegrown Apple.

Much has been made about Chinese sweatshops sucking away American jobs, of currency manipulation and unfair trade practices. In fact, there's a bigger threat to American competitiveness.

Cheap China is fading fast, and innovative China is emerging. The Chinese government is investing tens of billions of dollars into science and engineering research and education, and lavishing tax breaks and subsidies on technology firms and clusters, in an effort to leapfrog the country to the cutting edge of innovation.

Vijay V. Vaitheeswaran
Vijay V. Vaitheeswaran

How should America and other developed economies respond and stay on top in the 21st century's ideas economy? For a start, do no harm. Politicians should remember that global innovation is not a zero-sum game: China's rise does not have to come at America's expense. Three decades ago, many Cassandras wailed that Japan, with its centrally planned innovation investments and its superior cultural values, would crush the West. In fact, Japan's peaceful rise went hand in hand with America's entrepreneurs forging the new industries of the digital age.

That is why bashing China and using it as an excuse for industrial policies that subsidize uncompetitive domestic companies is a folly. This applies as much to Solyndra, a bankrupt American solar firm that got taxpayer subsidies, as it does to the lagging French toymaking industry, which has been declared "strategic."

IMF chief has good words for China
China not immune from gas price hikes

An even more dangerous prospect is a trade war, something that might happen as a result of Western governments ganging up on China at the World Trade Organization over its policies on rare Earth minerals. Top-down efforts to pick technology winners are bound to waste taxpayers' money. And forcing a trade war would actually hurt America, since its economy benefits the most from an open global flow of goods, people and ideas.

America's leaders should see China's inexorable surge as a rising tide that can lift all boats—providing, of course, that you patch the holes in your vessel first. That means shoring up the things that made America the world's innovation powerhouse in the first place.

First, America needs to reverse its policies that, since 9/11, have turned hostile toward talented immigrants. For decades, the American economy benefited from the gift of the world's brightest and most enterprising. Studies have shown that more than a third of the start-ups in Silicon Valley have at least one founder born in India or China.

Bill Gates points out the absurdity of today's immigration policies. Brilliant Chinese students make up much of the graduate program in computer science at the University of California at Berkeley, benefiting from a subsidized education. When they graduate and want to start companies that would hire many Americans, they are refused visas. So, as Gates notes, they go home and start companies there that compete with America instead.

Another hole that needs to be patched is in research funding. America's funding for research, measured as a percent of national output, has stagnated even as the rising giants of the developing world are investing heavily. It is wise to invest during economic recessions in those few things—like education, smart infrastructure and research—that are the essential enablers of longer term innovation, productivity and higher economic growth.

Finally, America can make it easier for young firms, which have created almost all the net new jobs the last few decades, to find capital. Banks usually refuse to fund start-ups, and even many venture capitalists have turned risk averse. Typically, entrepreneurs rely on friends, family and fools. But an important bill in Congress now that has support from both parties and the White House would make it easier to tap wider networks through "crowdfunding." Congress should pass this bill quickly, and help entrepreneurial energy to kick-start growth.

The surest path from stagnation to rejuvenation lies in innovation. If America wants to stay at the top, it needs to gear up on innovation.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of Vijay V. Vaitheeswaran.

ADVERTISEMENT
Part of complete coverage on
updated 8:27 PM EST, Fri December 26, 2014
The ability to manipulate media and technology has increasingly become a critical strategic resource, says Jeff Yang.
updated 11:17 AM EST, Fri December 26, 2014
Today's politicians should follow Ronald Reagan's advice and invest in science, research and development, Fareed Zakaria says.
updated 8:19 AM EST, Fri December 26, 2014
Artificial intelligence does not need to be malevolent to be catastrophically dangerous to humanity, writes Greg Scoblete.
updated 10:05 AM EST, Fri December 26, 2014
Historian Douglas Brinkley says a showing of Sony's film in Austin helped keep the city weird -- and spotlighted the heroes who stood up for free expression
updated 8:03 AM EST, Fri December 26, 2014
Tanya Odom that by calling only on women at his press conference, the President made clear why women and people of color should be more visible in boardrooms and conferences
updated 6:27 PM EST, Sat December 27, 2014
When oil spills happen, researchers are faced with the difficult choice of whether to use chemical dispersants, authors say
updated 1:33 AM EST, Thu December 25, 2014
Danny Cevallos says the legislature didn't have to get involved in regulating how people greet each other
updated 6:12 PM EST, Tue December 23, 2014
Marc Harrold suggests a way to move forward after the deaths of NYPD officers Wenjian Liu and Rafael Ramos.
updated 8:36 AM EST, Wed December 24, 2014
Simon Moya-Smith says Mah-hi-vist Goodblanket, who was killed by law enforcement officers, deserves justice.
updated 2:14 PM EST, Wed December 24, 2014
Val Lauder says that for 1,700 years, people have been debating when, and how, to celebrate Christmas
updated 3:27 PM EST, Tue December 23, 2014
Raphael Sperry says architects should change their ethics code to ban involvement in designing torture chambers
updated 10:35 PM EST, Tue December 23, 2014
Paul Callan says Sony is right to call for blocking the tweeting of private emails stolen by hackers
updated 7:57 AM EST, Tue December 23, 2014
As Christmas arrives, eyes turn naturally toward Bethlehem. But have we got our history of Christmas right? Jay Parini explores.
updated 11:29 PM EST, Mon December 22, 2014
The late Joe Cocker somehow found himself among the rock 'n' roll aristocracy who showed up in Woodstock to help administer a collective blessing upon a generation.
updated 4:15 PM EST, Tue December 23, 2014
History may not judge Obama kindly on Syria or even Iraq. But for a lame duck president, he seems to have quacking left to do, says Aaron Miller.
updated 1:11 PM EST, Tue December 23, 2014
Terrorism and WMD -- it's easy to understand why these consistently make the headlines. But small arms can be devastating too, says Rachel Stohl.
updated 1:08 PM EST, Mon December 22, 2014
Ever since "Bridge-gate" threatened to derail Chris Christie's chances for 2016, Jeb Bush has been hinting he might run. Julian Zelizer looks at why he could win.
updated 1:53 PM EST, Sat December 20, 2014
New York's decision to ban hydraulic fracturing was more about politics than good environmental policy, argues Jeremy Carl.
updated 3:19 PM EST, Sat December 20, 2014
On perhaps this year's most compelling drama, the credits have yet to roll. But we still need to learn some cyber lessons to protect America, suggest John McCain.
updated 5:39 PM EST, Mon December 22, 2014
Conservatives know easing the trade embargo with Cuba is good for America. They should just admit it, says Fareed Zakaria.
updated 8:12 PM EST, Fri December 19, 2014
We're a world away from Pakistan in geography, but not in sentiment, writes Donna Brazile.
updated 12:09 PM EST, Fri December 19, 2014
How about a world where we have murderers but no murders? The police still chase down criminals who commit murder, we have trials and justice is handed out...but no one dies.
updated 6:45 PM EST, Thu December 18, 2014
The U.S. must respond to North Korea's alleged hacking of Sony, says Christian Whiton. Failing to do so will only embolden it.
updated 4:34 PM EST, Fri December 19, 2014
President Obama has been flexing his executive muscles lately despite Democrat's losses, writes Gloria Borger
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT