China Rises

Hu Jintao visit

Chinese President Hu Jintao recently visited Seattle to meet with business and local government leaders before heading to Washington to meet with President Bush. Whereas American corporations are eager to do business with China and his visit here was considered a success by both parties, he was received less well in Washington, where he wasn't accorded a full 'state visit', his country was mistakenly (or not) called "The Republic of China" (i.e., Taiwan) at a White House welcoming ceremony, and his speech was interrupted by a Falun Gong supporter. That is major disrespect shown by the U.S. government from the Chinese point of view--the government point of view because the gaffes were censored on Chinese television--no doubt. These events bring up interesting questions, two of which I want to address: will China become the biggest economy in the world?; and is it beneficial for the United States to have good relations with China?

GDP: China vs. U.S.

The answer to the first question is yes: China will have the highest Gross Domestic Product (GDP) in the world within the next 15 years. Now, the two important measures of the GDP are based on 1) the purchasing-power parity, and 2) the exchange rate. In the case of China, the disparity between the two is huge. The reason is that goods in China are a lot cheaper than here. For example, a typical Chinese worker makes less than $.50 (see "China to be world's factory") but can still live reasonably well. The reason is that everything from housing to food is much cheaper than in the United States. Thus, according to the CIA, China is already second in the world if look at purchasing-power parity GDP:

GDP (purchasing power parity): $8.182 trillion (2005 est.)
GDP (official exchange rate): $1.79 trillion (2005 est.)
GDP - real growth rate: 9.3% (official data) (2005 est.)
GDP - per capita (PPP): $6,300 (2005 est.)

The comparable statistics for the U.S. are:

GDP (purchasing power parity): $12.41 trillion (2005 est.)
GDP (official exchange rate): $12.47 trillion (2005 est.)
GDP - real growth rate: 3.5% (2005 est.)
GDP - per capita (PPP): $42,000 (2005 est.)

If the current GDP growth pattern continues for both countries, China will surpass the U.S. by 2013. If for, example, China's GDP growth slows down to 7% this year and continues at that pace, it will take 5 more years to surpass the U.S. :

Historical rates have been ~9% and ~3% for China and the U.S. in the last 10 years, so I think the real numbers will fall somewhere in between. Is the PPP GDP a meaningful number? Not so much for China, because averaged over 1.3 billion people, the per capita GDP will still be a few times lower than the U.S. However, when Hu Jintao said that China still doesn't rank in the top 100 nations in terms of per capita GDP, he's underestimating China's position because Chinese consumers can buy a lot more in China than the official dollar/yuan exchange would indicate. The reason for the huge difference is that the Chinese government is keeping the yuan artificially low so as to make their exports cost less on the global market, which by the way is not necessarily bad for the U.S. (I'm not going to get into this subject at the moment, but the basic premise is that more U.S. service jobs are created because of the lower cost of goods).

Because some economists believe that the yuan is undervalued by as much as 50%, the real exchange-rate GDP of China is much higher than stated. So even if we look at that measure of GDP, China will still surpass the U.S. before mid-century. Will China's per capita GDP ever be as high as Switzerland, the U.S., or Japan? I think it's possible in the next 100 years but it'll be very difficult to achieve.

Discussion / impact on U.S.
Having established that China will economically be the most powerful nation in the world (not on a per capita basis) before mid-century, let's think about what it means to the U.S. First, China is a communist country politically (and economically up to 30% of businesses are still state-owned) that practices religious intolerance, absolute media control and demagoguery, forced abortions (a woman who is pregnant with a second child is forced to have an abortion unless she can bribe local party officials), incarceration and capital punishment for non-violent crimes such as tax evasion and being "an enemy of the people". Based on these principles, China should be an enemy of the United States. However, because like all countries, the U.S. does what's best in its strategic interest, the U.S. has engaged China both politically and economically, and increasingly, the U.S. sees China as a threat economically and militarily. Politically, communism is no longer a threat since the downfall of the Soviet Union, and the U.S. only now makes occasional public remarks with respect to human rights issues (business is more important). I should also point out that Mao Zedong's cultural revolution was responsible for at least 40 million deaths, the worst genocide in human history (also see the 01/06 National Geographic article on genocide; in the magazine version, China is listed as #1 in genocide)

Many people still think (including myself formerly) along the lines of: how can the United States have political dialogue and such a large trade with such a brutal regime, notwithstanding that Mao Zedong is no longer in charge? The simple answer is that it's been good for the U.S. economically, both for consumers at home and for companies who do business there (still, I cannot believe that Internet companies like Google and Yahoo comply with Chinese authorities when they request to turn over names of suspected anti-government journalists). That's the U.S. official policy, even though increasingly the trade imbalance is irking Congress, which by the way is probably the reason why Hu Jintao's visit wasn't designated an official state visit by the White House. Secondly, from a human perspective, or to define it more narrowly, my perspective as a citizen, we can't blame the Chinese people for its government. China has always been a totalitarian state. And we really shouldn't tell other nations how to run their own, especially if they're not ready for it (example: Iraq). Thirdly, if we look at the economic and human rape, plunder, and abuse of China by Western powers and Japan over the last few hundred years, we can't really be surprised if they're a nationalistic country.

Over time, China will become more democratic (probably never like the U.S. however) because its leaders realize that the lack of freedom of expression can stifle economic growth. Or can it? Either way, China is not out to attack the U.S. in the future. In fact, I think that last year's blockage of China's CNOOC attempted purchase of Unocal by the Congress, as well as the near blockage of Lenovo purchasing IBM's computer division were mistakes that China will not forget in the future. What's happening is that while the U.S. is touting free-trade around the world, it's protectionist when it serves its interests (other examples: Dubai port deal, and the perpetual agricultural subsidies to comparably rich farmers at the expense of Africa and Latin America). We're also trying to close down our borders and kick out hard-working immigrants who are not white, but that's a story for another time.

Similarly, I think the gaffes of the Jintao visit were a mistake on the American side. It's tantamount to unnecessary provocation that doesn't serve America's best interests in the long term. China will become a superpower in the future, and you don't want to annoy a hungry tiger for no reason. China is more advanced and more open than many people in the U.S. think. Just a few days, ago, I watched a documentary on China called, guess what: "China Rises"--it's a co-production of CBC (Canadian Broadcasting Company), the Discovery Channel, the NY Times, and I think some other entities. It's a 4-part series focused on politics, the economy, the environment, and society, respectively. I highly recommend it. You really see what it's like to live in China first-hand, what it's problems are, and what the future holds. Above all, you see the optimism and hope of its people. It's available for purchase either at CBC or at the Discovery Channel.

Why is it important for Americans to understand China? The impact will be felt much further than your local Chinese restaurant. I am certain that Chinese will become the second more important language globally after Chinese in another 25-50 years. It's hard for us in the U.S. to believe it because today we can get away with speaking English anywhere. But the world is changing, and American dominance around the world is on the wane. I'm not counting America out--it will have a strong presence in the world for the foreseeable future, but I really believe that the 21st century will be the Chinese century. China is not just growing economically, it also wants to influence other countries culturally (try a Google search on Confucius Institutes). Even without government help, more Americans will have a connection with China as our trade ties increase.

Is China rising at the expense of America? I think economically the answer is not yet. Culturally, I think the answer is yes, but it's America's fault due to the Bush administration's disastrous international policy--the gap is being filled, so to say. All empires eventually fall. Is it America's turn? I think it's a possibility in another 50 years. I should clarify: it's not as if America will be some provincial backwater on the world stage; rather, I think that at that point, China's world-wide political, economic, and cultural influence will probably surpass the United States'.

For additional related reading, see the following books: The Chinese Century and The Rise and Fall of the British Empire.