EDITOR'S note:

Handel Jones is the founder, owner, and CEO of International Business Strategies, Inc, a marketing and strategic consulting and analysis company.

As one of the leading experts on China's industrial and economic emergence, Jones demonstrates in his latest work "Chinamerica: Why the Future of America Is China" that the wave of the future is cooperation between the two nations, not conflict -- and how America will benefit from increased economic engagement and competition with China.

Jones has recently been in China on business and sits down to answer some questions from Shanghai Daily columnist Wan Lixin.



Q: A Chinese columnist remarked recently that Sino-US relations improve whenever the US economy deteriorates. Do you think that partly explains what you define as China, US interdependence?

A: This means that the US is a big market for China's products, and it is important for China for the US economy to be strong enough to buy goods from China. China also has foreign reserves of over US$2 trillion, 65 percent of which are held in dollars. If the dollar weakens or the yuan strengthens, China loses value.

US consumers need China to be the manufacturer of low-cost goods or products. China is the factor for the US. It is interdependence from a manufacturing perspective that is referred to.



Q: Do you think the crisis we have just seen indicates something wrong

with globalized mode of trade, whereby one of the world's poorest countries for years has been financing the extravagance of the world's richest country, with cheap labor, cheap resources, and easy credit?

A: Globalization is a key part of the modern era. There is the need to continue with the globalization perspective. China has obtained large benefits from the US, Europe, and Japan providing technology management and financing to build a strong industrial base in China.

The Chinese economy has been built on exports. China provided low-cost labor, land for factories, low-cost buildings, etc.

China is now entering a new phase. China is building up its middle class, developing its own technology. China will consume more of its factory output in China.

The US is also entering a new phase where it cannot continue with the same level of deficit spending that is taking place at the present time. The new programs being proposed to stimulate the US economy, such as US$50 billion to improve the infrastructure, will increase the deficits.

China is rising.

The US is declining.

That is a key part of the conclusion of the book, "Chinamerica."



Q: China is facing enormous challenge in raising laborers' wages and cutting emissions. What does that mean for China as the global factory?

A: China must change its industries from being labor-intensive to having high intellectual property content. China must design new products based on the innovation of Chinese engineers. China must also develop more jobs for its graduates, which will include many disciplines of engineering, management, finances, etc.

The building of the middle class is a process and is also part of China being a global power.

China should not become isolated. China needs to continue exporting. China factories need to become high-technology based on Chinese technology instead of foreign technologies.

China should design and produce its own iPhone rather than being only the factory for Apple.



Q: Do you think a country gravitating towards the bottom rung in the global division of labor could hope to one day attain to global economic supremacy? Many investment bankers have been hailing China as miraculous, but one centenarian Chinese scholar recently cautioned that there is no miracle in the world. Why are some people so effusive?

A: China's growth is not a miracle. It is due to good planning, where people make sacrifices. The migrant workers make large sacrifices. The encouragement of investments in China while retaining the ability to control the China market is good planning.

While the early phases of China's growth were based on access to cheap or low-cost labor, the next phase is based on new industries emerging in China.

The next phase of China's growth will involve many new challenges. A global recession or depression would not be good for the growth of China.



Q: The US is unconcerned with the money it owed to China or the rest of the world because it could always print the dollars at will. Do you think there is something wrong with this dollar hegemony?

A: The US dependence on borrowing is wrong. The use of borrowing as a short-term approach is appropriate, but there needs to be the generation of surpluses. It is through surpluses that wealth is generated. The long-term impact of the US deficits is that the wealth of the US will decline. The dollar is already weakening against gold and many other currencies, such as the yen.

A key reason to write the book, "Chinamerica," is that it is bad for the US long term to depend on borrowing. The political leaders in the US continue to support deficits because it helps them get re-elected. There is, however, growing realization in the US that the deficits cannot continue.

The key issue is what should the US do? And how will the US actions impact China? One trend that is, however, clear is that the dollar will continue to weaken and the yuan will appreciate.



Q: The Obama administration is contemplating another round of economic stimulus, when the investment bankers are already returning to the status quo ante. Do you think it is a correct move? What does that mean to China's dollar reserves?

A: The Obama administration is not focused on the real problems in that the US industrial base has weakened and must be rebuilt with new industries.

It is also critical that industries that represent large trade imbalances, such as automobiles, need to be strengthened.

The Obama administration does not seem to understand the seriousness of the US downward spiral, and many of the measures being proposed will make the deficits more serious in the future.

One of the problems in the US is the cost of government employees, which include federal, state, county, city, etc. The wages and pensions of the state employees are a very large burden on the US economy. The Obama government is not addressing this issue but is instead increasing costs.

Many people in the US are becoming very concerned with the lack of understanding regarding the real problems in the US.

The dollar will continue to weaken, and China will lose the value of its foreign reserves. Europe is also continuing to weaken, as is Japan. All these global factors will have a negative impact on China.



Q: What are your our impressions of Shanghai (or China) on this visit? Any advice, or warnings?

A: I have visited China almost monthly in 2010, and my present tour, which also includes Japan, shows China to continue to be on a growth path. I continue to be very impressed with China and the drive and ambition of the Chinese people.

China is trying to develop new sources of energy, including from the ocean, and this is interesting. China is also trying to develop new concepts for medical care, and this will involve many challenges. As mentioned, China is in the early spring of development, with many challenges.

It is, however, critical for China to be active on the world stage and not be introverted. I am very concerned with the continuing decline of the US and lack of acceptance of the reasons for the decline. This is why I wrote the book, "Chinamerica."

I am very impressed with China, but China is not perfect.

Ideally, the US and China can cooperate closely.

In reality, the level of conflict is increasing and is likely to continue to increase. This issue is very serious. It is very easy for the US political leaders to blame China for the problems in the US. While it is wrong to do this, it is, unfortunately, a reality.

I am writing the next book, which focuses on the future of China. I will share some of these ideas in the future.