The Myth of the China Threat

Who’d ever think I’d be quoting from an article put out by the neo-con American Enterprise Institute? Usually I’d avoid it, but this one actually has some grounding in reality. It deals with the question of whether China now poses a long-term threat to the US economy. It’s one of the new neo-con pieces I’ve seen about China that doesn’t get hysterical.

[A] dangerous myth is stalking international financial capitals. It is the idea that China has finally awoken and that the 21st century is going to belong to Asia.

This myth overlooks China’s fundamental political weaknesses. It also turns a blind eye to China’s economic clay feet and its many economic vulnerabilities. As such, it unnecessarily stokes American fears about the rising Chinese dragon and runs the danger of spawning protectionist pressures, which could undermine the global trading system.

There can be little gainsaying China’s remarkable economic performance since Deng Xiaoping launched China’s economic reform program in 1979. Over the past 25years, as it increasingly opened its economy, China has grown at an annual average rate of 9per cent, or at an appreciably faster pace than Japan and South Korea during their earlier economic miracles. This has allowed China to increase its gross domestic product tenfold and to lift 400 million of its citizens out of poverty.

The piece then goes on about the stuff we all know already: the staggering division between the haves and have-nots; the problems an increasingly middle class society will have with the antiquated Communist Party; the out-of-whack property prices, which will almost certainly crash with serious nation-wide consequences….

Here’s the interesting point, which made reading the whole thing worthwhile:

China’s recent rapid growth has not been the product of technological innovation or productivity increases of the sort that is now taken for granted in the US. Rather, it has been the product of investing an inordinate proportion of its income and of bringing part of its rural labor surplus into the market economy.

For China to pose a real long-term economic threat to the US, China would need to match the US’s sustained productivity performance, which has long been the envy of the world. Unless China truly embraces free-market economics, there is little chance of that occurring anytime soon.

And until China does so, the US should treat China as yet another, albeit large, emerging market economy that is trying to close the income gap between itself and the more prosperous industrialized

This is via Tapped, which offers its own interesting observation:

The claim I agree with here is that for China to overtake the U.S. economy in the long-run, it would need to match the U.S.’s sustained productivity growth. But there’s no “threat” here. German workers are more productive on a per-hour basis than are American workers. Americans would be better off if we achieved German levels of per-hour productivity, but closing the gap by reducing German productivity wouldn’t help Americans. Similarly, Chinese people becoming as rich and DVD-laden as Americans wouldn’t threaten anything. Indeed, it would be good, since if Chinese people were richer, they would presumably buy more American stuff.

I think the bottom line, for me, is that China could become a huge economic threat to the US if it ever got its act together and escaped from its own CCP-controlled tentacles. But for now, everyone needs to relax. Yes, China is a superpower when it comes to manufacturing cheap shoes and T-shirts. But to see them as being anywhere even close to attaining superpower status along the lines of the US is, at least for now, a fantasy.

The Discussion: 30 Comments

I guess I’m with Tapped in that i’m not sure what ‘economic threat’ means. Is it passing the US as the #1 economy or does it have to do with disrupting and damaging the US economy? or are those two things naturally related?

January 4, 2006 @ 10:23 pm | Comment

Daily linklets 5th January

Impeaching corrupt officials in Henan AIDS villages. Strong men and dings in Chengdu. Asia needs an honest broker. A magazine dedicated to silicone sex toys…only in Japan. Cantonese loses its voice – the language is dying at the hands of Mandarin in…

January 4, 2006 @ 11:07 pm | Comment

hehe…..glad that people finally got to their senses.

this is no news in China, if you walk to the street and visit the villages.
but in capitol hill it often became totally distorted, in different ways based on different political “needs”.

January 4, 2006 @ 11:49 pm | Comment

Interesting. However, China is doing more than making low end stuff, and WalMart will continue to quickly transfer american technology to China. We can also expect China to continue to disprespect intellecual property rights until some Chinese companies have IP of their own that needs international protection.

Either way, I’d rather we have a China without CCP.

January 5, 2006 @ 12:11 am | Comment

The best way to contain China and keep it down, is to keep the CCP in power. They rule through enforcing ignorance, so, as long as the CCP maintains absolute power, China will remain stupid and weak.

January 5, 2006 @ 12:16 am | Comment

I’m not a big supporter of the China threat argument (least in economic terms), but it strikes me that the AEI’s got its argument a little confused. The transfer of labour from rural to industrial work IS a massive and sustained increase in productivity. Sure the productivity’s not from management systems/technology, but when a developing nation can get such massive producitivity gains from shuffling labour why should they bother with the more complex stuff?

January 5, 2006 @ 3:03 am | Comment

“productivity” as an abstraction is meaningless. The question is, WHAT is being produced?

Lots of cheap plastic shit? Little trinkets like keychains? That is NOT any kind of basis for a “rising power”.

January 5, 2006 @ 3:12 am | Comment

How about computers and home appliances? Haier recently made an unsuccessful bid for the US’ sole remaining refrigerator manufacturer, and Lenovo is now advertising on American television after buying out IBM’s PC business. Thirty years ago, people sneered at Japanese junk. A few folks still laugh at ‘made in Korea,” but Samsung and Hyundai have become global brands. The real challenge for America is to help the non-college graduate 65% of the US population to find sustainable employment as our manufacturing base continues to move overseas.

January 5, 2006 @ 8:20 am | Comment

duncan is right.

peasant’s income increase from 100 to 1000 RMB/mon is massive productivity increase.

there are a few ways to define productivity. one of them is $/hr.

January 5, 2006 @ 11:53 am | Comment

Thing is, wouldn’t a true neocon consider the China Threat to include the PRCs military power and political influence? This article touches on neither of these issues. This is more like a free trade advocate argument: the implication is that in a free market, China surpassing the United States economically would be a net positive. If you’re a true free trade believer, then that’s when you put your money where your mouth is. Of course, it doesn’t address the question of how economic might can be used as political leverage (by China, the US or anyone else for that matter).

January 5, 2006 @ 11:56 am | Comment

Doesn’t China now produce more electronics-stuff than America now?

Tomagachis and such nonwithstanding, electronics are usually a bit more than plastic trinkets.

January 5, 2006 @ 12:16 pm | Comment

davesgonechina, good point on the military issue.

Regarding trade, I saw a recent Frontline investigation on US China trade. The US is sending China Cotton and getting receiving clothing. Shipping pulp recycled paper and getting finished goods, shipping recycled plastic and getting completed electronic components. If you look at what is getting shipped in and out of Long Beach you’ll see we’re not that high tech.

I’d be more concerned with China’s coalition with Iran and other buddies they are consolidating.

January 5, 2006 @ 1:27 pm | Comment

China can definitely challenge the US regionally in Asia, although not yet globally. The way China challenges the US in Asia is not by military might of course, but through a combination of economic incentives and soft power diplomacy. Beijing has cultivated a message to Asian countries that all of them will share in China’s economic prosperity and yet won’t have to worry about being bullied about like many complain the US has been doing. I think the Hu Administration is doing a lot in the foreign policy front, especially in terms of formulating a consistent image and message that can effectively counter the American “gospel” of Democracy and Freedom that have dominated the entire Asia since the end of the Cold War.

Right now, Beijing is clearly gaining the upperhand in Asian diplomacy against Washington, partly due to Washington’s preoccupation with Iraq and the Neo-Con’s “cowboy” style black-and-white foreign policy. Beijing has succesfully portrayed itself as the one with more nuiance and understanding of the interests and needs of region, while Washington is just a over-zealous ideologue who starts his every speech with fighting terrorism and spreading democracy. China is successfully starting to squeeze and erode America’s sphere of influence in Asia and is asserting itself, not militarily, but in other areas, as the leader of Asia. In response, Washington wants to push Japan to the forefront and use it as a counterweight to check and balance China. Therefore, in a way, the recent blistering Anti-Japanese stance of the Chinese government is not some knee-jerk reaction, but a highly calculated move by Beijing as it feels confident it has accumulated enough political capital to “stick it” to Japan. Of course sticking it to Japan is just an indirect way to stick it to the US.

In the next 3-5 years, Asian neighbors will be sort of forced to side with either China or Japan (backed by US), and Beijing is reasonably confident that more countries will fall in line with itself rather than with the US. South Korea, Malaysia, and Singapore are already clearly siding with China over a wide range of issues.

January 5, 2006 @ 2:21 pm | Comment

Here’s a question for China Hand: let’s say China is successful in what you describe, and basically replaces the US as an organizing center of gravity in Asia. What do you think China envisions for the region? I grant you the US has its ideological approaches, especially those raving loons the neo-cons, but can a nation be a regional center without having some sort of guiding ideology? Even a policy of non-interference, in opposition to US advocacy of democracy, is an ideology, especially since its impossible to not “interfere” entirely without ending all relations with another nation.

I mean, we’re talking about regional leadership, so that goes beyond being the hub of economic activity, regional activity and pleasant diplomatic ties. It means presenting a vision of the future, even if it is only rhetorical. We know the US one: democracy and free markets for all. What would China’s be?

January 5, 2006 @ 3:14 pm | Comment

I mean, we’re talking about regional leadership, so that goes beyond being the hub of economic activity, regional activity and pleasant diplomatic ties. It means presenting a vision of the future, even if it is only rhetorical. We know the US one: democracy and free markets for all. What would China’s be?

It’s not necessary to have a philosophy to be a regional power, only when you ascend to be a global superpower will you need a global philsophy. China is not yet at that stage. If it ever reaches that stage, and feels the need to not only economically and politically challenge the US, but intellectually as well, then ideas will naturally develop according to the course of history and the state of the world, and even scholars and thinktanks will be put to work to come up with ideas. But for now, that’s unnecessary.

Look at the US, pre-WW2, it was not a superpower and had no organized message for the world, the catch phrase “Democracy and Freedom” was almost unheard of at that time. And America was selling weapons to both Germany and the UK. But then America won the WW2, and emerged as the West’s hope to guard against the USSR. So it then naturally developed ideas of democracy and freedom to counter Communism. This started with Truman and continues to this day, though I think it has almost run its course. In fact, there’s a famous phrase called “Human Rights Diplomacy” coined by the Carter Administration.

So when the time comes, things will fall into place.

January 5, 2006 @ 6:57 pm | Comment

I disagree. If you’re going to be the front man for Asia, then you oughta have some notion of what “Asia” is.

As for the US pre WW2, it certainly did have ideological messages related to democracy et al. Imperialism was one at the end of the 19th century, later followed by the Monroe Doctrine, Dollar Diplomacy and of course Wilsonian foreign policy, from which the neo-cons stole all their ideas on using American power to promote democracy abroad. It did not begin with Truman.

The ideas were there before the US had become top dog. And I can’t believe that China’s intellectuals are content to wait for something to fall into their laps.

January 5, 2006 @ 7:44 pm | Comment

I forgot to add that the Monroe Doctrine and Dollar Diplomacy were both regional policies on Latin America, which laid some of the groundwork for US foreign policy. Much like I expect China’s Asia policies to set the tone for its international policy.

And now that I think of it, my question was about China’s vision for the future of Asia. Regardless of whether China is the top dog in Asia or not, shouldn’t it have one?

January 5, 2006 @ 10:07 pm | Comment

And before….don’t forget Manifest Destiny. The US had ideological springboards even in the 19th century. So I would disagree with China_hand that ideology comes about upon superpower status and not earlier.

January 5, 2006 @ 10:07 pm | Comment

I knew I was forgetting something in there. Thanks Thomas, Manifest Destiny, the direct ancestor of the late 19th century experiment with imperialism. Imperialism was becoming unfashionable, so Roosevelt added to the anti-imperial Monroe Doctrine (European non-interference in the Americas) the Roosevelt Corollary, which said the US reserved the right to intervene in Latin America.

So if China has a Monroe Doctrine (non-interference) and Dollar Diplomacy (aid to Taiwan recognizing nations in Africa and Latin America) equivalents now, can we expect it to continue following the US example and introduce the Hu Corollary (right to intervene in Asia)?

Maybe that’s what that navy is for. Is the Taiwan anti-secession law the beginning?

January 5, 2006 @ 11:04 pm | Comment

It’s funny that for every single person that plays up the China Threat there’s another that laughs at China’s military as nothing more than a “million men swim”. For every person that says China’s economy is the *insert hyperbole* there’s another that say it’s going to collapse.

Watching China for a little while and you will soon begin tune out all the stupid rhetorics like “china threat theory” about military X Y Z or china economy at 2025 2040 etc.

January 6, 2006 @ 1:53 am | Comment

I tuned out the China Threat BS long ago. But it’s fun to watch the world go into conniptions, reacting to this dire imminent “threat.”

January 6, 2006 @ 2:56 am | Comment

“China could become a huge economic threat to the US if it ever got its act together”

Sorry Richard, but you’re showing some rather unpleasent colors here, specifically the red of the Republican party.

“Threat” implies hostility and malice, and that the opposing number is an enemy. I think the word that you are looking for is “Competitor”

China is not threat to the US economy, it is a competitor to the US economy.

There is some rather telling irony in the fact that you, a proponent of peace, are using the language of war to describe China’s economic rise. which is largely peaceful.

January 6, 2006 @ 3:43 am | Comment

Ed wrote:

We can also expect China to continue to disprespect intellecual property rights until some Chinese companies have IP of their own that needs international protection.

Some Chinese companies are already facing this problem. According to Shanghai Daily, a couple fo months ago a Guangzhou-based Chinese music and video company filed fifty IP lawsuits in Shanghai over pirating of their products.

I think you are right, though, until more Chinese companies have something to risk, the banks of CD-burners are going to keep spinning. ๐Ÿ™

January 6, 2006 @ 4:02 am | Comment

ACB, come on, grow up. Ok, Alex?

January 6, 2006 @ 5:00 am | Comment

You claim not to follow Washington, yet you’re using the same language as Washington.

Maybe you should clarify things here, do you, in all honesty, feel that China is gunning for America with agressive intent, or that China is rising, and it happens to be displacing America in doing so.

Like it or not, China has every right to compete with America, and if America doesn’t like it, then maybe it should either get out of the market, or square up to the competition like an adult, rather than branding China an agressor.

It is far easier to put somebody down with words, than it face them down with actions, and it is a far better man who admits to a challange than accusses his chalanger of miscontuct.

January 7, 2006 @ 9:03 am | Comment

agree with ACB.

to make it easier for you guys to follow the logic. the same applies for japan…that “japan has every right to compete economically with china and US”, and in fact, even for political influence, as long as they stays with ‘peaceful developement’.
and it applies to every single country, even russia and N korea.

January 7, 2006 @ 6:20 pm | Comment

Of course China may compete with any one in the world economically. That’s already a given, You let your ego misread Richard’s intent by “China could become a huge economic threat to the US if it ever got its act together and escaped from its own CCP-controlled tentacles.”

Hey, be a self respecting competitor, ACB and sunbinn. You owe Richard an apology.

January 7, 2006 @ 11:55 pm | Comment

Chesterm their comments are so wildly ignorant and off-base I can’t deal with them. Talk about putting words in someone’s mouth….

January 8, 2006 @ 12:30 am | Comment

no worries. it gets effortless here dealing them. seriously, the effcts do take longer to sink in, but all is not ever lost!

January 8, 2006 @ 3:44 am | Comment

I don’t think that I’m being off base at all, you’re using exactly the same language to describe China’s economic rise as you are its military forces.

If you want to be taken seriously, you must use different terminology and aproach these two issues from different angles.

You frequently pick up on the fact that Beijing uses the same language to describe an STD campaigner and a terrorist, this is little different.

January 8, 2006 @ 4:37 am | Comment

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