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Economist Ryan Ratcliff separates fact from fiction in regard to Southern California’s econ

China is on track for long-term economic growth and the expansion of the Asian powerhouse will likely yield more opportunities than threats for the United States, according to economists and business leaders who spoke at the presentation of the UCLA Anderson Forecast on Wednesday.

The Anderson Forecast is a quarterly prediction of the California and national economy. It is widely cited by media outlets and observers of U.S. business and economics.

UCLA economists briefly discussed the domestic economy, predicting that a gradual decline in the U.S. housing market will weaken the economy in the coming quarter, but will not do enough damage to cause a recession.

After explaining their data on the domestic economy, presenters in the UCLA Anderson School of Management’s Korn Convocation Hall quickly shifted the focus to China, where business is booming.

China’s gross domestic product is growing at a staggering rate. Its growth rate was about 9 percent in 2005, nearly three times the United States’ real growth rate in the same year, and experts predict that it will keep growing.

“China is long on labor and short on capital,” which means that a little money goes a long way, and the growth can last for a long time, said Donald Straszheim, vice chairman of Roth Capital Partners, a large investment banking firm.

He described China’s situation as analogous to taking a low-wage worker who only has a shovel and giving him a wheelbarrow: A minimal investment allows him to drastically increase his productivity.

China’s enormous supply of cheap labor is one of the reasons it is so attractive to U.S. businesses, forecasters said.

Many businesses have moved their manufacturing centers to China, and some, like Cisco Systems-Linksys LLC, are starting to put research and development teams in China in order to link research more closely with production.

This “outsourcing” or “off-shoring” has caused widespread anxiety in the United States concerning job loss to China, especially as the number of domestic manufacturing and factory jobs continues to drop. In order to protect their jobs, California workers should be conscious of global competition, said Tom Debrowski, vice president of worldwide operations for Mattel Inc.

“If a function can be performed better, faster, cheaper in another part of the world, it will end up there,” Debrowski said.

But Edward Leamer, director of the Anderson Forecast, said he does not expect the United States to lose too many jobs to China. Much of the job market in the United States consists of jobs that are “nontransferable,” he said. This means the jobs rely on creativity or complex problem solving, which makes it difficult for businesses to give those positions to lower-paid workers in other countries.

The countries at greatest risk for job loss are ones whose job markets are made up of comparatively cheap and less-specialized laborers, such as Mexico and Brazil, Leamer said.

China’s impressive growth is also attracting large amounts of foreign investment, according to data collected by Roth Capital Partners. In 2004, for example, foreign investors poured about $60 billion into China’s economy.

But doing business there is still like going to the “Wild West,” Straszheim said, because people doing business in China have few of the protections American businesspeople are used to.

China has few laws regulating commerce or protecting business deals, its banks are often unreliable, and intellectual property is hard to secure, he said.

Debrowski said Mattel is currently pressing more than 700 lawsuits against people or companies who it accuses of copying its products.

But corruption and fraud are not the major reasons people lose money doing business in China.

“It’s really hard to make money in China. ... It’s hyper-competitive,” said Charles Wolf, a senior economic advisor for the RAND corporation.

Business in China functions according to a system different from the one U.S. business people are used to. Rather than revolving around laws as business does in the United States and Europe, Chinese business deals are based on trust and personal relationships, Wolf said. This means businesses have to invest large amounts of time building relationships in China if they want to succeed, he said.

Not everyone in China is benefiting from the economic boom. Of the approximately 1.3 billion people in China, 700 to 900 million of those in the country’s rural interior are still subsistence farmers who produce so little that they barely play into China’s economic statistics, forecasters said. Unemployment is also high among those farmers.

But the country’s recent economic reforms have benefited many Chinese people who live closer to the coast and in cities.

They are the ones pushing reforms; “they’ve decided that rich and growing is more fun than poor and stagnant, and they want this (economic reform) to continue,” Straszheim said.