Tuesday, February 28th 2006
are YOU afraid of China?
According to US intelligence “czar” John Negroponte, China stands poised to become a “superpower” next to the United States. It’s easy to understand why: after all, China’s GDP compares to Canada’s, making China a major global trading partner with the West. (China’s GDP was $1,159 billion in 2001, while Canada’s was $694 billion). China’s economy has been growing at roughly 9-10% every year.
And even on this campus there are those with enough wisdom to recognize this. Dr. Gregor’s course on Communist China (PS 137B) discusses the horrific impact of Mao’s “communism” on China and China’s economic rebirth with Deng Xiaoping’s economic reforms (slightly dismantling the command economy). It’s quite clear that China today fully intends on becoming a global military and economic power.
But on the flip side, I cannot help but notice that even today, despite China’s roaring economic and military growth, their per capita income is still hovering between $900 and $1,000 dollars per year! Not only that, but the majority of their 1.2 billion people live in the country side. Industrial activity only recently over took agriculture as China’s largest contributor to GDP, 51% as of 2002. China may be growing fast, but frankly, if you have nothing and it grows, you still have nothing. When our economy grows at 3-4%, we are still producing more and adding more to the economy than China does.
I do not mean we should be complacent, on the contrary, we need to be fully prepared economically and militarily to compete against the Chinese in the future. I’m just a little less alarmist about the whole thing. China still has a long way to go, and I do not think that we have to worry too much about them tomorrow, or a year from now, or a decade from now. Maybe I’m wrong and China will surprise me.
To the extent that China becomes a “superpower” it’ll be in the same sense that the Soviet Union was a superpower: through sheer military might. There’s no question that the Soviets, and now the Chinese, cannot compete with us economically (not yet anyway). China can’t continue to pour so much into it’s military without a strong economy behind it and expect to last a long time (again, I use the example of the USSR). And although the Chinese economy has liberalized considerably, their public sector industries are still a major drag on the economy and the state.
Well, those are my thoughts on the matter. Anyone who thinks I’m completely wrong, feel free to tell me so and explain why.
In the 1980’s people argued similar things about Japan, particularly about how their economy would soon overtake the United States. Some argue that this didn’t happen because the Japanese economy grew too quickly and “overheated.”
Comment by Fresh Prince — 2/28/2006 @ 4:32 pm
“When our economy grows at 3-4%, we are still producing more and adding more to the economy than China does.” -Ben
We do not produce anything anymore. We produce hamburgers and entertainment. Call it 3%-4% if you will, but that’s not sh*&!
$1000 in China in the country-side gets you further then anywhere in the US or Canuckia. I bet half the things you own were made in China. Got rice?
Comment by what — 2/28/2006 @ 9:56 pm
What’s with this US vs. China thing? Take an econ course and realize that free markets means a bigger pie for all. (i.e. more trade, more specialized economies, more jobs, more goods and services.) Two bakers in the kitchen means more pie. Mmmm… pie? Blueberry!
Comment by Anonymous — 2/28/2006 @ 10:28 pm
Too many chefs spoil the broth.
Comment by what — 2/28/2006 @ 10:36 pm
Anonymous has the better-tasting metaphor, I’m afraid.
Comment by Beetle — 2/28/2006 @ 10:47 pm
You can be afraid all you want – it doesn’t bother me. I would, however, like you to describe what a metaphor tastes like? Never had one? Probably never will.
Comment by what — 2/28/2006 @ 11:07 pm
Your fears are wrongheaded. The progression of China is fantastic. GDP per capita tripled in the 1990s; astonishing growth. Wait till they start innovating! Even better, its all due to the shift from communism to capitalism. Free markets and less statism. No greater proof that all those campus leftists are wrong, so so wrong. How can you look at China and say that statism is the way to go? But, trust me, leftists are impervious to all reason.
Comment by Anonymous — 2/28/2006 @ 11:08 pm
I have no issue with China being an economic competitor, although I certainly do not want the US to fall behind either. But at the same time, they are an antidemocratic regime with nukes. I for one do not want them to have an economy that can support a military capable of challenging us, not until they deomcratize fully.
Comment by Ben Chapman — 2/28/2006 @ 11:14 pm
I agree, but I believe they became a superpower during the summer of 1999, just as the UK press reported. They may have an economic downturn like most economies, but they will still have their state-of-the-art military that they are currently building. Therefore they will have leverage on the world stage in politics for a long-time to come.
Comment by what — 2/28/2006 @ 11:15 pm
Theyre tremendously important politically already. Theyre running the US economy! If they stopped buying US treasuries, the house of cards would collapse.
Comment by Anonymous — 2/28/2006 @ 11:26 pm
no comment
Comment by Anonymous — 3/1/2006 @ 12:12 am
The China debt scare is rediculous. Foreigners are investing wildly in US capital because we have the strongest economy in the post-industrial world. Foreigners are also buying US dollars because they trust our currency above most others in the world.
But what if China is doing all this investment so they can wait for the moment, sell it all and screw us?
This is a popular notion but it’s just not going to happen. The reason is that any attempt to move that ammount of bonds would precede a crash in the value of both the credit and the dollar before the trades hit the floor. This means that the Chinese would loose all their money along with us (it would be like consumers running on a bank in order to protest customer service policy).
Comment by mickeyk — 3/1/2006 @ 8:18 am
The Bank of China are not investing for profit. Theyre doing to to bolster the value of the yuan. I think they’re foolish not to diversify into something else. That said, I think theyll continue buying Treasuries for a long time yet. I agree, theres piles of horror stories about a dollar collapse that are just misguided. And theyre politically motivated by leftists so as to undermine the Bush Adminisration.
Comment by gary — 3/1/2006 @ 8:29 am
I was reading the blog of Berkeley economics professor (DeLong) and he’s saying that the dollar could crash any day cos the Chinese might lose faith in the Bush Adminisration (and stop buying Treasuries). In which case, we’re all doomed. A pretty scary scenario.
Comment by jim — 3/1/2006 @ 2:58 pm
The United States is the healthiest economy in the G8, and our “trade deficit” indicates that foreign capital is flooding into the country at increasingly rapid rates.
By the indicators, it appears the Chinese will only increase their interest in investing in the United States, with or without a president who will term out in 2008.
Comment by Mickey Klein — 3/1/2006 @ 6:10 pm
Mickey, what you’re saying is true, but somewhat tautological. Just because Im giving you money at “increasing rates” surely doesnt mean I think you’re a good investment - you could simply be demanding it from me. Of course money is flowing it at increasing rates, but thats tantamount to saying nothing.
But its not necessarily due to a more propitious investment environment, as you’re suggesting. Its to prevent a dollar depreciation and, correspondingly, a yuan appreciation, so as to foster growth; thats the policy of the Chinese monetary authorities. Thing is, they can easily diversify into euros, say. That notwithstanding, its unlikely they will partly due to the attendant fall in the value of their foreign reserves.
Comment by gary — 3/1/2006 @ 8:16 pm
Thats true, it only lends a likelyhood that the Chinese will keep investing, not a guarantee. That is, however, all that one can say about any investment.
Comment by Mickey Klein — 3/1/2006 @ 8:26 pm
“I was reading the blog of Berkeley economics professor (DeLong) and he’s saying that the dollar could crash any day cos the Chinese might lose faith in the Bush Adminisration (and stop buying Treasuries). In which case, we’re all doomed. A pretty scary scenario.”
The dollar won’t crash. Too many countries use it as their own security. If the dollar did drop in value, the U.S. economy would do better, since American exports become cheaper and imports become more expensive. This is why the Chinese government have been keep their currency rated low verses the dollar.
Comment by Michael — 3/2/2006 @ 11:19 am
Also, the fact that they have yet to fully integrate into the WTO and if they did would have problems concerning intellectual property rights on electronics and drugs, this should slow down their economy substantially. But, I also think that Chinese growth will be good for the region and the global economy. Chinese growth will definitely force improvements between Japan and China. Diplomatic and economic. Other problems facing China down the road will be stabilization of population growth, education, energy problems and solutions, more asian free trade agreements, labor markets, and nuclear weapons agreements. More importantly, they would like to rival the us. That won’t happen. They’ll make a good run of it though. Plus opening more markets will lead to greater exchanges of information, etc… which will hopefully help to further liberalize the region and help destroy state owned businesses.
Comment by Gabriel Corrie — 3/3/2006 @ 9:29 am