CHINA AND THE UNITED STATES:  PARTNERS OR ENEMIES?

• First, a word about the Chinese economy.  Although China’s economy is a third the size of America’s at market exchange rates, its GDP per head is one-fourteenth that of America.  The innovation gap between the two remains huge and America’s defense budget is still six times larger than China’s.  But, China has begun transforming itself from a global economy based on low-priced goods fueled by cheap labor into a much more diverse and complex economic power.  As David Barboza of the New York Times writes:  “China doesn’t just dominate trade; it scours the globe for resources; doles out multibillion-dollar loans to developing nations; and holds stakes in Wall Street giants like Morgan Stanley and the Blackstone Group.  A nation that sold about 600,000 cars in 2000 is now poised to eclipse the United States and is on course to sell nearly 15 million vehicles in 2009.  No country has ever accumulated larger foreign exchange reserves ($2.2 trillion) and no country has more Web surfers (338 million).  And China leads the world in initial public stock offerings.”  Here are some statistics that indicate areas where China outranks the US:

•  Initial Public Offerings:  In 2009, the US did $13.7 billion in IPOs, while China in 2009 did $34.8 Billion in IPOs.
• Foreign Currency Reserves:  In 2009, the US held $47 billion, while China held $2.273 trillion in foreign currency reserves.
• Trade Balance:  In 2009, the US trade deficit was minus $853 billion, while China’s trade surplus was +$267 billion, an increase of 841% since 2000.

Here are also some statistics that indicate where China is behind but rising fast:

• Billionaires:  In 2009, the US had 359 billionaires, while China had 79 billionaires.
• Fortune Global 500 (the largest companies by revenue):  In 2009, the US has 140 (a 22% decline since 2000), while China had 37 (a 363% increase since 2000).
• Gross Domestic Product:  In 2009, the US GDP was $14.2 Trillion, while China’s was $4.3 trillion.
• Top 50 companies by market capitalization:  In 2009, 21 of those companies were US (compared with 29 in 2000), while 9 of those 50 were from China (compared with 1 of the 50 in 2000). 

As Barboza reports, “Ask the world’s luxury brands where sales are holding up, and where they are expanding, and they will tell you, in China.  Every big city in China is building five-star hotels and the country’s newest airports make America’s look shabby.”  China’s momentous shift economically is creating the need for analysts and economists to explain and forecast how China’s rise will remake the world and the lives of ordinary Americans.  The two economies are so interlocked and interdependent that the US must regard China as nearly a partner, as well as a competitor.  As we all know, America is the world’s largest debtor nation and China is the world largest creditor nation.  In a sense China is America’s banker—and they are watching how we spend their money much more closely!

• Second, China is also a major contender with the US in foreign and military matters.  China has engaged in a rapid military build-up that could challenge America as the defender of Asian peace and of Taiwan’s sovereignty.  Unannounced, for example, China is building its first aircraft-carrier.  Also, typically China’s generals usually refuse to even talk with American generals and admirals.  There is therefore growing tension militarily between the US and China.  Where is China headed with its increased military prowess?  Is its military expansion intentionally directed at challenging the US?  Is China seeking to remake the world order?  As its economy becomes increasingly more powerful, its companies are “colonizing” huge swathes of Africa and Latin America, and cozying up to regimes the West regards as despotic and horrific (e.g., Sudan, Iran and Venezuela).  Further, its economic investment in the US has the potential for significant geopolitical inroads.  What will China do with this growing economic influence and power?  Will it spill over into foreign policy challenges to the US?  China is projecting a façade of economic and political strength.  Where is all this headed?  However, despite this seeming façade of power, one must remember that China’s internal problems are formidable.  There are tens of thousands of protests within China annually.  There are significant social, cultural, demographic, even religious challenges within China.  China remains a one-party system controlled by the Communist Party.  China is trying something no other major power has done.  It is granting a significant degree of economic freedom to its people but insisting on totalitarian control over nearly all other aspects of Chinese society and its people.  Can they pull this off?  Historically, when economic freedom is given, quickly there is the demand for political and personal freedom (witness the USSR in the late 1980s).  China is not doing this.  It is trying the experiment of granting economic freedom but no commensurate political freedom.  Can they make this work?  Only time will tell.

• One final thought:  The New York Times on 14 November 2009 reported that Chinese leaders are most interested in the current debate on health care within the US.  The Times wrote:  “The Chinese were not particularly interested in the public option or universal health care. . . They wanted to know, in painstaking detail, how the health care plan would affect the US deficit . . . Like any banker, they wanted evidence that the United States had a plan to pay them back.”  They are determined to argue rather clearly that they do not expect the US to finance this through more debt, which they hold.  As Chuck Colson observes, “Isn’t it ironic that the communist Chinese are more concerned about the cost of socialized medicine than the President and the Congress.  That the Chinese communists are more concerned about the US government printing money like it’s going out of style than we are?”  This should be a significant wake-up call to our government!  It is nothing short of incredible that we are inching closer to a complete overhaul of the US health care system, with a significant portion of it soon to be financed by the US government.  Further, the financial deal-making to get this passed will further increase the national debt.  The President and the Congress are not telling the American people the truth about either the House plan already passed or the Senate bill just beginning to be debated.  The Congress has separated out so many inherent costs to the US taxpayer to give the illusion that it will not increase our debt.  I absolutely guarantee you that it will increase our national debt, which already is projected to increase by $1 trillion each year for the next decade!  The simple bottom line truth is that the US cannot afford this health care colossus overhaul working its way through Congress!  If you do not believe that, just ask the Chinese!  They are terrified by what we are doing.  We will see what they do to the US in the coming years.

See “Breakpoint” (17 November 2009); David Barboza in the New York Times (15 November 2009); and The Economist (24 October 2009), pp. 15-16.

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