STEVE INSKEEP, HOST:
Diplomats are talking of a meeting this fall between the presidents of the U.S. and China. They want an agreement before a truce in President Trump's trade war expires. As the U.S. tries to compete with China, it faces a complicating factor - China's industrial power has expanded beyond its borders. The world's workshop is moving its workshops. We heard this from a Chinese economist, Dan Wang, of the Eurasia Group, which is a consulting firm.
DAN WANG: China's manufacturing sector is about one-third of the global total, and it's still expanding. We kept talking about excess capacity that China has been building up in the past 40 years, but now we are far from reaching the top. So many of the Chinese businesses are trying to get away from the price war at home because we know China is still experiencing deflation. That's in sharp contrast to the U.S.
INSKEEP: I want to figure this out. China is making one-third of everything that is made in the world...
WANG: On average.
INSKEEP: ...Depending on the industry and so forth. And they're making so much that their consumer market can't absorb it all.
WANG: Exactly.
INSKEEP: So if China, the workshop of the world, has built too many workshops, effectively, they can't figure out a place to sell all their stuff, what is the transition that they're making - the companies?
WANG: They are getting more inventive. More companies are setting up their shops in ASEAN countries, especially Vietnam, Cambodia, Malaysia and then trying to explore markets there. The European strategy is becoming increasingly important for China's domestic manufacturers. Many producers are trying to find overseas market, and by setting up overseas factory, they're able to, one thing, get to still the U.S.-European market with lower tariffs. And two, they create new market locally.
INSKEEP: What are other countries and regions where Chinese firms are building factories?
WANG: Now the new front is in Thailand, Indonesia, Mongolia, Malaysia. But then, beyond Asia, there's Middle East. Saudi Arabia, Oman have become more important. They're politically stable and very friendly to Chinese investment. And Latin America has been very important for many of the state-owned enterprises because it's also mining-related - strategically important. Africa is important, but it's quite difficult to have a profitable business there.
INSKEEP: Well, that leads to a number of questions. First, is this expansion by Chinese manufacturing into the rest of the world working, succeeding?
WANG: Very much succeeding. And in a way, it is quite scary because it sort of change local culture in a meaningful way. All of a sudden, there are a lot of Chinese people, a lot of Chinese investment and politically, local residents, local politicians that they got nervous.
INSKEEP: Ah. Should they be?
WANG: They should because it will change the local dynamic between, say, the unions and the companies and how to price labor's wage and what kind of industrial policy that they should follow.
INSKEEP: What are the implications then for the United States, which is in this trade war and trying to tariff Chinese goods? What are the implications of the fact that China is in so many places at once?
WANG: It's quite similar to what happened to Japan in 1980s, and that's when we saw the greater overseas expansion of Japanese enterprises. And over time, in the '80s and '90s, Japan has effectively created another Japan. So Japanese companies were creating bigger GDP than the Japanese GDP within 20 years. And China...
INSKEEP: Wow.
WANG: ...Now is only at the initial stage of its global expansion of its enterprises.
INSKEEP: If you're an American national security person and you're worried about China, is China's spreading manufacturing base around the world a reason to be even more afraid?
WANG: I would be. If I were American official, I would be very alert on the development.
INSKEEP: Dan Wang is with the Eurasia Group. Thanks for coming by.
WANG: Thank you very much for having me.
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