by Don C. Brunell
President, Association of
Washington Business

Bloomberg News reports that Chinas trade surplus with the United States so far this year is $63.3 billion, a whopping 88 percent higher than 2006. That fact is raising eyebrows in Congress.
Even more worrisome, China is sitting on $1.2 trillion in foreign currency reserves much of it American dollars and its economy is scalding hot, growing at 11.1 percent this year.
What are the Chinese doing with all that cash?
In part, they are plowing it back into their own research and development.
The American Electronics Association detailed Chinas ambitious 15-year science and technology initiative designed to spawn indigenous innovation. Though specifics of the plan are sketchy, Chinese leaders plan to invest 2 percent of the nations gross domestic product into the initiative by 2010, rising to 2.5 percent by 2020.
The Chinese government is investing in its universities to make them world-class education and research centers modeled after the U.S. system. Since 1998, state financing for Chinas higher education institutions has more than doubled.
The American Electronics Association notes that China had more than 926,000 researchers in 2004 second only to the United States and 77 percent more than they had in 1995. Goldman Sachs, one of the worlds largest global investment banks, estimates that if this trend continues, Chinas GDP in 2050 could be $44.5 trillion, compared to $35.2 trillion for the United States.
Thats all pretty sobering, but what does it mean?
It means that China, a nation of 1.3 billion people, could once again be the dominant economic power in the world and the global center for science and innovation. Remember, while Europe was still in the Dark Ages, China invented gunpowder, rockets, the compass, the printing press and the mechanical clock.
Today, China is best known for providing low-cost skilled labor for foreign-owned companies. But the Chinese are not satisfied with that. They want to nurture their own high-tech industries, part of their self-described indigenous initiative. While the project is in the early stages, its already showing signs of success. For example, homegrown companies like Haier (consumer electronics) and Huawei (networking equipment) are becoming global players.
With all that money and all those scientists, should the rest of the world throw in the towel? The answer, of course, is no.
The Chinese system does not stimulate creativity and freedom of thought. Americans are ingenious because our culture encourages people to take risks, be creative and think outside the box.
There are two good examples right here in Washington. Bill Gates and Paul Allen envisioned the day when people would have personal computers and would need software to operate them. Craig McCaw looked ahead to the time when millions would communicate using personal cellular telephones. These entrepreneurs amassed huge fortunes providing these products and continue on the cutting edge of innovation.
As long as Chinas authoritarian government quells free spirits and innovative thinking, America has a chance. However, it will take a unified national effort.
Remember when the Soviets launched Sputnik, the first space satellite? America was shocked and President Dwight Eisenhower galvanized the country behind the National Defense Education Act in 1957. Congress quickly passed it and appropriated $1 billion to improve math and science education. In 1957, $1 billion was a lot of money.
We can do it again. A good start would be for Congress to make R&D tax credits permanent. They are set to expire for the 13th time at the end of the year. Removing that continued uncertainty would be a good start to matching Chinas gains, but our elected officials would be wise to remember that would be just a good start!