China and America

A new report from The Economist on US-China relations.

A special report on China and America
A wary respect
Oct 22nd 2009
From The Economist print edition

Miles argues:

The financial crisis has sharpened fears of what Americans often see as another potential threat. China has become the world’s biggest lender to America through its purchase of American Treasury securities, which in theory would allow it to wreck the American economy. These fears ignore the value-destroying (and, for China’s leaders, politically hugely embarrassing) effect that a sell-off of American debt would have on China’s dollar reserves. This special report will explain why China will continue to lend to America, and why the yuan is unlikely to become a reserve currency soon.

Who has the power in this situation, the country that borrows or the country that lends. Most would argue that it is the lender, but when the lender has to keep on lending becaus eof US structural power, then it is not so clear cut. We will also find out over the next few years just how much the lender (China) is dependent on the borrower's (the United States) markets.

The economic crisis briefly slowed the rapid growth, from a small base, of China’s outbound direct investment. Stephen Green of Standard Chartered predicts that this year it could reach about the same level as in 2008 (nearly $56 billion, which was more than twice as much as the year before). Some Americans worry about China’s FDI, just as they once mistakenly did about Japan’s buying sprees, but many will welcome the stability and employment that it provides.

The rest of the world is going to have to get used to Chinese investment, just like they had to get used to Japanese investment in the 1980s. But this doesn't mean that countries like Australia shouldn't continue to review strategic investment by the Chinese state. Anything less would be against Australia's national interest!!

China may have growing financial muscle, but it still lags far behind as a technological innovator and creator of global brands. This special report will argue that the United States may have to get used to a bigger Chinese presence on its own soil, including some of its most hallowed turf, such as the car industry. A Chinese man may even get to the moon before another American. But talk of a G2 is highly misleading. By any measure, China’s power is still dwarfed by America’s.

Authoritarian though China remains, the two countries’ economic philosophies are much closer than they used to be. As Yan Xuetong of Tsinghua University puts it, socialism with Chinese characteristics (as the Chinese call their brand of communism) is looking increasingly like capitalism with American characteristics. In Mr Yan’s view, China’s and America’s common interest in dealing with the financial crisis will draw them closer together strategically too. Global economic integration, he argues with a hint of resentment, has made China “more willing than before to accept America’s dominance”.

The China that many American business and political leaders see is one that appears to support the status quo and is keen to engage peacefully with the outside world. But there is another side to the country. Nationalism is a powerful, growing and potentially disruptive force. Many Chinese—even among those who were educated in America—are suspicious of American intentions and resentful of American power. They are easily persuaded that the West, led by the United States, wants to block China’s rise.

All good points and there is no doubt that it is this relationship that will largely shape the next 20 years.


For a good short review of recent books on US foreign policy see Amy Chua "Where Is U.S. Foreign Policy Headed?"

One book I want to read is by Andrew Bacevic.

Andrew Bacevich’s searing manifesto, “The Limits of Power: The End of American Exceptionalism.” Excoriating American profligacy and delusions of military invincibility, Bacevich calls for a foreign policy rooted in humility and realism. One of Bacevich’s most interesting arguments is that the astronomical costs of the Iraq war — not just unregulated hedge funds and subprime mortgages — contributed directly to the 2008 financial collapse. By 2007, he writes, “the U.S. command in Baghdad was burning through $3 billion per week. That same year, the overall costs of the Iraq war topped the $500 billion mark.” Nor does Bacevich go easy on the Obama administration. He describes Barack Obama’s national security team as “establishment figures, utterly conventional in their outlook.” He sees Obama’s stimulus package and commitment of more troops to Afghanistan as ominous signs of continuing “self-destructive behavior.”


Bacevich, a harsh critic of neoconservatives like Kagan, also favors a return to cold war policies, but in his case to a strategy of “containment.” Bacevich urges the United States to “let Islam be Islam. In the end, Muslims will have to discover for themselves the shortcomings of political Islam, much as Russians discovered the defects of Marxist-Leninism.”