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Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It [Hardcover]

Zachary Karabell

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Now in paperback, Zachary Karabell argues that the intertwined economic relationship between China and the U.S. will affect our long-term prosperity more than any other contemporary issue. As the world continues the slow work of repairing the damage of the financial crisis, it is crucial that the U.S. understands that it cannot go it alone. Its mutuality with China is permanent, essential, and defining. Zachary Karabell's brilliant book lays out this complex and important economic story."Karabell excels at weaving in glitzy tales of the brave new China against the larger backdrop of the Middle Kingdom's forceful but cautious economic liberalization and the often tortuous, frequently saber-rattling politics of U.S.-China relations....A provocative argument.""--Los Angeles Times""The question at the heart of "Superfusion "is a pressing one: What will happen next? Mr. Karabell says that the U.S. must turn its thinking away from the military and security challenges of the twentieth century and focus more on the economic challenges of the twenty-first.""--The Wall Street Journal""A compelling brief on the unlikely convergence of the U.S. and Chinese economies....Essential reading for anyone curious about the increasing economic integration and interdependence between China and America, the public opposition in both nations, and the implication for the U.S. as it faces competition from a nation it cannot coerce.""--Publishers Weekly "(starred review)

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Amazon.com: 4.2 out of 5 stars  17 reviews
33 of 37 people found the following review helpful
5.0 out of 5 stars Best China Book I've Read 7 Oct 2009
By Harold Kellman - Published on Amazon.com
I have been interested in China since 1998 when a good friend married a Chinese national and encouraged me to visit and make up my own mind about the Middle Kingdom. I have read 15 books about China and visited three times in the last 14 months. Zachary Karabell is the first author to put together a comprehensive historical and financial framework that explains what has been going on in China for the last twenty years with on-the-ground personal experiences and portfolio management insights from his several years as running a successful China mutual fund. He explains how Kentucky Fried Chicken, Avon and Federal Express achieved success but I was more interested in his not-as-well known company examples which included [...], [...], China Life Insurance, and Huawei Technologies.
Deng Xiaoping's economic reforms in China have been going on for thirty years. Everywhere I went and talked to young Chinese (through an interpreter who spoke Mandarin) they mentioned Deng's remarks "to be rich is to be glorious" and "Black cat, white cat, what does it matter as long as it catches mice?" The well educated twenty to thirty-five year old Chinese men (and women) know that the 21st century is their century. These "Chuppies" - Chinese yuppies - were everywhere in Shanghai and Hong Kong. Their internet phones and laptops were ubiquitous and more advanced than mine. The only thing I did not understand was the fascination with massively multi-player online role-playing games in internet cafes.
My only quibble is that the term "Chimerica" (which was coined by Niall Ferguson) would have worked better in the title instead of "Superfusion".
I highly recommend this book. Also, if you haven't been to Asia, go to Hong Kong and Shanghai. Those skylines with their new 100 story buildings put New York City to shame.
32 of 37 people found the following review helpful
5.0 out of 5 stars The Future Is 'Superfusion' 13 Oct 2009
By Yi Liu - Published on Amazon.com
"Here begins our tale. The empire, long divided, must unite; long united, must divide. -- Moss Roberts (translator) <Romance of Three Kingdoms>"

Last Wednesday (Oct. 7, 2009), Alcoa surprised Wall Street by reporting a profit for the most recent quarter after three consecutive quarterly losses. CEO Kleinfeld said, "China clearly is back and back very, very strong and pulling some of the Asian markets."

This is just one of many examples showing how "China" is positioned in this worldwide financial meltdown and recession. While some blamed China as the cause of this crisis for its currency policy and cheap goods, others hope China will be the very engine that pulls the world, especially epicenter of the crisis, the United States, out of recession.

Zachary Karabell, an American author, historian, money manager and economist, is the President of River Twice Research, where he analyzes economic and political trends. With several 4-5 star books at hand, Karabell wrote a new book to tell us the story behind China's rising economy and its "superfusion" with the United States.

First, the book started with the economical background in China and Unite States. China was poor after decades of command economy and isolation. Deng Xiaoping was determined to open China to foreign investment. United States was at the dawn "New Economy" and big companies were lagging and searching for opportunities around the globe.

Then, the author moved on with stories of three big names (KFC, AVON, FedEx). They invested in China heavily without much short-term return but aimed for the future. In the meanwhile, China utilized foreign capital for development while it still kept financial system partially isolated.

At the turn of new millennium, China's economy started to rocket accompanied by huge return for foreign investment, rising Chinese influence, interdependence between China and United States and tension with the western public, especially what happened along with the Olympics last summer.

After citing several key economical data and political events, Karabell concludes that China and Untied States have become "Chimerica" with closer and closer economical tie between each other despite increasing tension between the nationalities. And the prosperity of the world economy also depends on this "superfusion".

As a reader who grew up in China for 20 years then moved to USA for graduate school 4 years ago, I am immersed in the author's knowledge behind geopolitical public opinions and his subjective view on controversial political ideology on either side. To name a few, I nodded when he talked about the diplomatic dictatorship of USA over other countries including China. I smiled when he mentioned the increasing nationalism among Chinese against the West. I enjoyed his many stories behind major economical/political events happened in either country, such as Tiananmen Square, WTO talk, the Bra War, 2008 Olympics, etc.

I noticed one point on which the author might be wrong. In Chapter 10 (P. 201-2), the author states that "One of the failings of domestic Chinese banks was that they were not attractive for individual deposits." However, AFAIK, the fact is the opposite. Lacking a profound social security system, as well as medical insurance, or unemployment protection, Chinese people have to save a "LOT" in case of any major thing happens. In 2002, National Savings Deposit Balance is 10 trillion Yuan (USD$1.2T), which equals GDP of China in that year. In 2008, the number is CNY21.8T (USD$3.2T). People dare not spend their savings. Thus, the problem is not lack of deposit, it is "Too much deposits". This also suggests a great potential for domestic consuming once extensive social security system assure everyone in China.

About economical superfusion of the world, the author predicted that Chinese manufacturing as well as consuming will be the key to world-wide prosperity. It will also result in a shift of power from the West to the East. A lot of other economists and specialists also predicted this for various reasons. But their views on the fate of USA vary. I agree with Karabell that this shift would not necessarily mean a bad/downturn future for Americans. Actually, they will benefit from this global superfusion and remain prosperous. For further reading, I recommend a book "The Future for Investors". Dr. Siegel discussed this issue from an investor's point of view.

Overall, this is a very good book for understanding the geopolitical and economical interactions between China and United States during the recent decades. It also sheds light upon current world economy issues from a unique angle. I recommend you read this book if you are interested in international affairs, world economy, and/or Sino-US relationship.

In the end, let's go back to the quote in the beginning taken from "Romance of Three Kingdoms". Our world has been long divided ever since; maybe it's time to be united, without conquering. For computing, AMD says, The Future is Fusion; for humanity, Karabell suggests, The Future is "Superfusion". Time will tell...
16 of 18 people found the following review helpful
3.0 out of 5 stars USA is Addicted to Debt, and China Gladly Keeps Lending 3 Jan 2010
By David M. Freedman - Published on Amazon.com
China, the USA's largest creditor, buys billions of dollars in U.S. Treasury bills. That allows us to keep interest rates low. Low interest rates encourage Americans to spend more money than they have. Americans especially like to consume low-priced Chinese goods. So China has been happy to fuel this cycle of investment and consumption. Thus our two countries have become partners, says Karabell: "The Chinese and U.S. economies have fused to become one integrated system. Americans should embrace this fusion."

Karabell downplays the fact that the relationship is more a codependency than a partnership--like drug dealer and addict. Now the USA has overdosed on debt, while China keeps saving, investing, and growing. China's premier Wen Jiabao stated that he is worried about the safety of China's investment in the USA. How long can the "partnership" last? Karabell underestimates the potential for conflict and the impediments to the happily integrated system that he envisions.
15 of 18 people found the following review helpful
5.0 out of 5 stars Timely and Important - 16 Oct 2009
By Loyd E. Eskildson - Published on Amazon.com
Recent economic travails have triggered intensive questioning of the financial system created by the United States and warped by Wall Street. That has led many to reconsider America's place in the world and wonder whether this is indeed the twilight of American power. At the same time, both China and the U.S., after years of seeking closer integration, have begun to question that wisdom. Author Karabell, however, argues that their fusion has advanced too far for either to extricate itself without severe harm. Over the past two decades, China and the U.S. have become one integrated hyper-economy - 'Chimerica.'

To bolster his point about how the U.S. and China economies are intertwined, Karabell contends that without Chinese reserves bolstering U.S. Treasury bonds in the past 18 months, it would have been far more challenging for the United States government to rescue a crumbling financial system. And without American consumers having bought Chinese goods over the past years, China would never have accumulated the reserves that allowed it to spend hundreds of billions of dollars to support the economy during the worst of the financial implosion. (On the other hand, without the low American interest rates afforded by Chinese funds, the U.S. may not have had a housing bubble.)

China began with a trade economy limited to 5% of GDP in the 1970s - it was isolated, and self-sufficient as best possible - like North Korea today. The process of turning outward began about 20 years ago. First came about ten years of experiments with private enterprise in special enterprise zones. By the late 1990s, "State-Owned Enterprises" (SOEs) were allowed to lay off workers, select banks could pursue delinquent firms for repayment, and many restrictions on size and scope of private companies were lifted. As many as 50 million lost their jobs. At about the same time the government also lifted its once-stringent restrictions on internal travel and migration. Its urban population went from 25% in 1990 to nearly 40% at the end of the millennium - nearly 200 million moved.

This then led to people requesting they be allowed title to own homes, and the sell-off of many state assets. Infrastructure needs jumped. SOE managers became increasingly held to performance standards, given wider latitude, and rewarded or punished for results. China's leaders also learned from watching Russia's early 1990s problems after dictation from the U.S. and World Bank, and decided that China needed to go slower, in stages. (Eg. lower tariffs slowly, not all at once.)

A major early boost to China-U.S. trade was President Clinton's decision to stop making trade contingent on its human rights situation. Reasons: 1)The Chinese weren't budging. 2)The instability hampered businesspeople in both countries. (We really need to stop insisting we know what's best for everyone - it's arrogant and ignorant, even self-defeating. We need to recognize that, as Karabell points out, what China did in the 1990s took the states of western Europe more than a century and the U.S. more than five decades.)

Karabell then tells how KFC and then Avon fared in China. KFC now has about 2,000 locations, representing less than 7% of Yum's branches globally but 25% of profits. Its three-story 700 seat flagship store near Tienanmen Square opened in 1987. A two-piece meal + drink cost about the average Chinese weekly wage. Six years later, KFC had less than 12 stores in China - starting out slow was also its guide. A few Chinese items have been added to the menu, and a 'Chicky' mascot proved much more effective than Col. Sanders (viewed as a stern grandfather figure), especially with children. The firm focused on premier locations near tourists, partly because advertising was practically non-existent. While meal costs are less than comparable U.S. offerings, so are costs - overall meals are about 3-4X as profitable as in the U.S.

Avon went to China in 1990. Struggling in the U.S. (women had growing opportunities), and targeted at the middle-class here, its initial 1,000 Chinese representatives were highly educated and skilled (they lacked alternative opportunities). One of its first was a 40-year-old pediatrician earning $120/month. Working part-time, she soon sold $5,000 in products, pocketed $1,500, and thought of going to Avon full-time. Avon also boosted its success by tailoring products to the tastes of local women, and producing them in China as well. However, the Chinese government was suspicious of multi-level sales arrangements (fear of high prices and Ponzi-schemes) and disliked the large-meeting recruiting drives (feared anti-government activities). Direct sales were then banned in 1998. Avon switched to retail sales and continued to do well. In 2006, the government allowed direct sales to resume.

Trade deficits are a sensitive problem in a number of nations. The topic is acerbated by unclarity of statistics. Assembling a G.E. appliance in a Chinese factory it owns is not likely to be classified as an import when the product arrives in Long Beach. However, if the same product had been outsourced to a Chinese company and produced on the mainland, it would be classified as an import upon arriving here. (Thus, our trade deficit is understated; this may partly explain why it has grown so fast. Other reasons include a preoccupation with terrorism and Iraq.)

Karabell claims that one reason Chinese leaders have been so adamant about not allowing China's currency to trade freely is they believe this would lead to a collapse of the currency as in Russia during the early 1990s. The problem centers around concerns over the large proportion of non-performing Chinese bank loans. However, Karabell's explanation of the link was unclear and ineffectual. Meanwhile, the Chinese government is working to 'clean-up' the problem.

By 2007, more than 400 of the S&P 500 derived 40%+ of their profits from outside the U.S. International sales also are faster growing. (Karabell doesn't explain whether this is from sales to outside nations, or profit allocations to offshored work.)

"Superfusion" ends with Karabell recounting Britain's need for large loans after WWII. The U.S. took advantage of the situation and required Britain to open up its empire to trade, thus ending the British Empire and forcing it to take a backseat vs. the U.S. Karabell believes the same may happen to the U.S. vs. China, and recommends we re-orient ourselves away from current military and security challenges (eg. Given their intertwined economies, do Japan and Taiwan need the U.S. Navy's 7th Fleet in the Pacific to protect them from China?) to a greater economic focus, and working closer with China. (Despite Karabell's excellent material, I still believe we need to restrict free trade with China.)
6 of 7 people found the following review helpful
2.0 out of 5 stars Superconfusion 28 May 2011
By fabio - Published on Amazon.com
Format:Hardcover|Verified Purchase
Originally published in Epoch Times:

A review of "Superfusion" by Zachary Karabell

Karabell, Zachary. "Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It," 340 pp., Simon & Schuster (October 2009), $10.88, ISBN:141658370X

History will not be kind to books like Zachary Karabell's. In the very modestly titled "Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on it," Mr. Karabell explains that the economies of the United States and the People's Republic of China are actually one economy, that the U.S. Navy is an anachronism, that U.S. and Chinese officials will one day sit down together and jointly decide their countries' (sorry: country's) interest rates, and that, in this inverse-communist utopia, the nation state will simply wither away as humankind joins hands and strides into a future of free markets and eternal prosperity (except for the florid peroration, he really did write all those things).

Mr. Karabell's work seems a perfect demonstration of the adage that only really smart people can come up with the really stupid ideas. A Harvard Ph.D. who works as a business adviser and economic analyst, Karabell's view of the future between China and the U.S. is among the rosiest on offer. And who would not want to recline back onto that soft bed of pink petals, where everyone means for the best, conflict doesn't exist, and economic interdependencies take care of everything? Of course, the thorns are the trouble--but Karabell conveniently ignores those.

The book begins with the massacre of students on Tiananmen Square and runs through the last two decades of economic change in China. Chapter titles are slick, their length slim, and the footnoting minimal--the focus is on a fresh interpretation of a well-known set of facts. Or, rather, a subset of facts: enormous and crucial parts of the New China puzzle are elided in this narrative. It would not hold together otherwise.

Mr. Karabell's principal argument is that China's massive holding of U.S. debt, the uptick in U.S. business in China, China's entry into the World Trade Organization, the growth in mutual trade, foreign investment, etc., mean there has been a fusing of the Chinese and U.S. economies--a "Superfusion," a "Chimerica," that has gone largely unnoticed, he says. These interdependencies are likely to be insuperable, we learn.

On at least one point Mr. Karabell gets the economics horribly wrong, where on pp. 201-202 he claims that Chinese do not deposit much of their savings in banks (in fact they deposit huge amounts of savings in banks, which is incidentally very useful as the Communist Party's play money).

Where others see factional warfare in the Communist Party, Mr. Karabell sees "ambitions of individuals... subordinated to the common good." (p. 164) Where others see Zhu Rongji saying that China is not a rival of the U.S. as no more than plain-old lying, Mr. Karabell sees genuine friendship. Where others see the Chinese Communist Party as something resembling a mafia, looking after its own and a network of elite supporters while plundering resources and destroying rivals or not even allowing them to exist, Mr. Karabell sees an Athenian style `democracy.'

He tells us all the good bits about U.S. business in China, but none of the messy bits (for that the serious student will read Joe Studwell's "China Dream" and Ethan Gutmann's "Losing the New China"). Without knowing the real determinants for the success or failure of foreign businesses in China--and Mr. Karabell does not explain them in his recounting of three low-hanging anecdotes--it is indeed difficult to predict future success. But Mr. Karabell does not let such details impact the grand narrative, so the story steams ahead.

In this analysis, the deep differences and contradictory interests between the U.S. and China take a back seat. But in the real world it is only a question of how long one can luxuriate in a rose bed before getting pricked.

On Jan. 13 the head of the Joint Chiefs of Staff Michael Mullen commented that "China is investing in very high-end, high-tech capabilities... Many of these capabilities seem to be focused very specifically on the United States."

China develops anti-satellite and anti-ship weaponry not for fun, but to use them. Mr. Karabell's fusion could be cleaved in twain in as much time as it takes to say "Taiwanese independence!"
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