Op-Ed Contributors

Sino-US bridge over troubled waters

By Harold McGraw III (China Daily)
Updated: 2009-11-18 07:50

To meet President Hu Jintao in China, US President Barack Obama had to cross the same ocean that former president Richard Nixon did for his famous meeting with Chairman Mao in 1972. Yet today, the distance seems nowhere as far.

In the years since that historic meeting, growing trade and commerce ties have brought the two countries closer. And despite all the uncertainties of the global economy, this much is certain: The relationship between the US and China is more important than ever before.

The US and China are the world's largest and third largest economies, accounting for nearly a third of the global GDP, and the financial crisis has made the world look toward them for leadership.

For the sake of global prosperity, the two countries must answer this call together. They need to strengthen their partnership around three pillars: fueling economic recovery, fostering open markets and forging new economic relationships.

First, the US and China have to continue working together to lift the global economy out of the downturn. The crisis has impacted both the countries very differently, but the situation could have been far worse if leaders on both sides of the Pacific had not responded with strong measures, including the massive stimulus packages.

In the long run, the two countries need to build a more sustainable model for lasting growth. In the US, families will need to begin saving more and consuming less. Which means China will not be able to depend as heavily on exports to the US for economic growth.

That will create an opportunity for China to diversify from a mostly export-driven manufacturing economy to a more service-based knowledge economy. The success of this effort will hinge on two factors that have long underpinned America's economic growth - strong education and a robust financial market.

Education develops human capital and markets improve the flow of financial capital. When countries bring these two forms of capital together, they lay the foundation for growth and prosperity. As the chief executive of a leading global provider of financial and education services, I have seen this foundation come together in China over the past few decades.

China has made enormous progress in education: the number of teachers has soared and the illiteracy rate has plunged. The country is now home to the world's largest school system with about a quarter billion students enrolled in institutions of primary, secondary, and higher education.

China today faces the same question that the US has long struggled to answer: how best to prepare students for the challenges of an increasingly competitive global economy. As the number of jobs requiring advanced skills and critical thinking has increased, so has the demand for post-secondary education. In response, the two countries need to strengthen higher education and professional development, and promote online and digital learning because these technologies are crucial to educational excellence in the 21st century.

China has made extraordinary progress in the financial arena, too, because of which its stock and debt markets have grown rapidly. Measured by total market capitalization, the world's three largest banks are now in China. Overall, Chinese financial institutions have emerged from the recent crisis far healthier than many of their counterparts in the West.

China has the unique opportunity to emerge as a global leader as the US and other Western economies rebuild their financial systems. By undertaking key reforms, China can build a financial system that is more transparent, better connected to global markets and better equipped to serve the needs of Chinese investors and entrepreneurs.

In the years ahead, restoring balance to the global economy will require the two countries to do their part. These are complicated issues, to address which their leaders will need to continue coordinating closely.

Second, the US and China will have to continue working together to resist trade protectionism and to expand trade and investment. Over the past 10 years alone, trade between the US and China has more than quadrupled, from less than $100 billion to more than $400 billion. While America has become the largest market for Chinese exports, China has emerged as the third largest market for US exports.

It would be a terrible mistake to change course and veer down the path of protectionism because of the financial crisis. During times of economic challenge, it can be tempting for nations to seek comfort behind tariffs and barriers against other countries. History, however, shows the folly of this course. When nations beggar their neighbors, they ultimately beggar themselves.

Instead of retreating from the world, the two countries need to open their economies further and continue welcoming foreign investment. They need to reduce barriers to trade and investment around the world by successfully completing the Doha Development Round.

In recent months, China has taken positive steps in this direction by promoting greater trade in areas from Asia to Africa. As the chairman of the Emergency Committee for American Trade, I have strongly urged my country, the US, to follow suit. Global trade and investment are not the cause of our problems. They are the solution.

Finally, the US and China have to work together to build new economic relationships at all levels. At the government level, Obama and Hu took a welcome step by expanding the Strategic and Economic Dialogue. This forum will give the two countries' leaders a platform to discuss critical issues.

At the business level, we know that new relationships can lead to innovations. As Chinese companies begin developing more of their own intellectual property, they will share a growing interest with American companies in strong protection for copyrights and patents. These types of protection will be especially important as the two countries work together to develop state-of-the-art clean energy technologies to fight climate change.

In every sector of their economies, the two countries should welcome fresh opportunities for partnership.

Over the years, the relationship between the US and China has come a long way - from the first seeds of commerce to a flourishing era of growth to a terrible financial crisis. Through these many changes, their relationship has emerged stronger than before.

Though an ocean still separates the two countries, a bridge of shared economic interests now joins them. And this is the time to strengthen that bridge.

The author is Chairman, President, and CEO of McGraw-Hill Companies.