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Can China's Companies Conquer the World?

By Pankaj Ghemawat and Thomas Hout The outcome of the U.S.-Chinese contest is far from clear and depends at least as much on how well Western multinationals and governments exploit their existing advantages as on China’s ability to up its game when it comes to the kinds of products and services that will define the twenty-first-century economy.

To understand how that might affect China’s future prospects, it’s important to first grasp the reasons why many remain bullish on China—to review the evidence that supports the case for future Chinese dominance. At first glance, the numbers are impressive. China’s GDP is likely to surpass that of the United States—although probably not until at least 2028, which is five to ten years later than most analysts were predicting before China’s current slowdown began in 2014. After all, China is already the world’s largest market for hundreds of products, from cars to power stations to diapers. The Chinese government has over $3 trillion in foreign exchange reserves, which is easily the world’s largest such holding. And China overshadows the United States in trade volume: of the 180 nations with which the two countries both trade, China is the larger trading partner with 124, including some important U.S. political and military allies. Finally, China has made steady progress toward its goal of becoming the investor, infrastructure builder, equipment supplier, and banker of choice in the developing world. Much of Asia, Africa, and Latin America now depends on China economically and politically.

Since Chinese share prices tumbled last summer and then again earlier this year, investors have grown wary of the country’s stock market. But that market has been largely irrelevant to China’s economic growth: from 1990 to 2013, as Chinese GDP grew at roughly ten percent annually, the stock market barely moved. Its recent gyrations are no more indicative of China’s overall economic well-being than was its long stagnation. China will likely recover from its current economic setbacks just as the United States recuperated after wild stock market swings and a major depression in the first half of the twentieth century.

Read the full article as published in Foreign Affairs.