What role for U.S. in China's next move?

Last month HSBC, formerly Hong Kong Bank, surprised many in the global business community by announcing it would relocate the office of the chief executive back to Hong Kong from London.

Seventeen years ago, the banking giant moved its headquarters from Hong Kong to London after Great Britain agreed to hand back the former British colony to China.

In making its September announcement, HSBC acknowledged "the world's economic center of gravity has shifted decisively east." Some in the financial world question the wisdom of such a move, but given the history and the role HSBC has played in the development of China, the old Chinese saying that, ''the best friend is an old friend'' is at play here.

Most observers see the move as recognition that China will not only soon become the economic leader in Asia, overtaking Japan and the United States, but will also soon take its place next to the United States as a superpower.

China's Phase II is just beginning. According to its 2009 China report, J.P. Morgan says the Middle Kingdom is about to launch a second-round buying binge of natural resources, including coal, iron ore, crude oil and other raw materials from central African and South American countries. This increase signals the growing demand within China for houses, cars and other consumer goods.

China is also starting to increase purchases of finished goods from Indonesia, Russia and Australia as it expands the scope of its economic activities outside of traditional Asian relationships.

China, long an exporter to consuming countries like the United States, is now positioning itself to use its cash reserves to purchase goods and services from U.S. and other western economies to move its domestic economy up the ladder from a developing economy to a developed economy, much the way Japan did in the 1980s.

As China's new consumer phase evolves, it will look to countries and organizations, like HSBC, to provide markets and services that will help achieve objectives while at the same time providing economic benefits and advantages to those "old friends" who help advance China's economic goals.

Whether the United States can take advantage of China's new shopping spree remains to be seen.

One of the questions still open is whether the United States has the capability and manufacturing facilities to produce the products China will be looking for. America also may have a hard time convincing China that it fits the definitions of an "old friend" while at the same time using U.S. military power to protect its strategic positions in Asia.

Part of China's Phase II includes building up its own military in a bid to become both a global economic and military power -- a superpower.

In the May issue of the Far Eastern Economic Review, Dan Blumenthal writes that China is not just relying on its position as a nuclear power but intends to deploy a strong navy so it can strategically cover the oceans of the Asia/Pacific region.

There is already a competition between the U.S. Pacific Fleet and the advancing Chinese navy. Consider China's submarine fleet: Since 1995 China has placed into service 38 new submarines, a rate of almost three per year. During the same period the United States reduced its submarine fleet by 25. Although the U.S. submarines are superior in technology and construction, the gap is closing fast.

China has built three new slips in the harbors of the Persian Gulf for its largest oil tanker. But navy experts point out that those slips are deep enough for aircraft carriers, and China has had three new ones on the drawing board.

Given the geopolitical competition between China and America, it may be too much to expect that U.S. firms could be major recipients of China's new buying binge. But a balance must be struck between the U.S. economy as a buyer of China's goods versus the United States as a provider of products for China's buying binge.

As for Minnesota, there are no encumbrances when it comes to dealing with China as an "old friend." Tony Lorusso, executive director of the Minnesota Trade Office, points out that "the relationship between China and Minnesota goes as far back as the 1880s when James J. Hill envisioned his Great Northern Railroad and shipping lines to Asia as a critical link to China."

Today, China is Minnesota's second-largest export market, contributing more than $1 billion to the state's economy. Lorusso predicts that as Minnesota moves beyond the current global economic crisis, the state's historic connection with China will place Minnesota in a good position to take part in the Phase II expansion of China's economy.