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FYI American Media: China Is 30 Years Behind

Posted By Derek Scissors, Ph.D. On November 19, 2009 @ 2:57 pm In International | Comments Disabled

President Obama didn’t accomplish much [1] on his Asia trip. He has the media covering for him, though. They’re not praising him, they’re making bigger errors than he did, especially on the U.S. and China.

Tough times have made people pessimistic about America’s future, and with good reason. Elements of the media have picked that up and run (and run and run), to the point of claiming the U.S. is economically subservient to the PRC [2]. This is not just wrong, it’s outrageously wrong.

Not to pick on CNN (OK, maybe a little) but last night Candy Crowley told Anderson Cooper, “China has challenged if not surpassed the United States in terms of economic power” and Cooper gravely agreed. Chip Reid on CBS called America “virtually powerless” over China. This is so absurd it’s hard to know where to start.

Consider wealth. In a very hard 2008, the average American earned about $47,000. The average Chinese citizen earned $3,400. To be fair, things in China are generally cheaper so the World Bank multiplies the China number by two and a half. That leaves an American making five and half times more last year, not to mention all years before that. Has someone making $20,000 a year “challenged” someone making $110,000?

What about economic size? We hear endlessly about how fast the PRC is growing. There are more than 4 times as many Chinese as American citizens, surely their economy is larger than ours. No. The US economy is more than three times larger. If someone else’s house and yard are three times larger than mine, I’m pretty sure I haven’t “surpassed” them on that count.

The press might point to Chinese influence. China is accounting for most of the world’s growth, they might say, the world is turning to the PRC to lead it out of the recession. No.

We measure economies by gross domestic product, GDP. When counting it up, a trade surplus raises GDP and a trade deficit cuts it. China runs the world’s biggest trade surplus, the US runs the world’s biggest trade deficit. That’s a problem — for both countries, actually – but it means the US adds by far the most to the rest of the world’s GDP and China takes the most away from the world’s GDP. This year, last year, every year. The world can’t turn to the PRC for help in economic growth because the PRC every year turns to the world for help and gets it, $290 billion worth in 2008.

Now the fun one: China is America’s banker. The Obama administration has stopped saying this [3] but the media still can’t figure it out. Let’s try one more time to get it straight:

1) The US runs a gigantic budget deficit, which hurts our economy and threatens our future.
2) The PRC holds $800 billion in treasury bonds and probably over $1 trillion in total US government bonds
3) China has no choice but to buy those bonds [4].

It’s complicated but, related to the fact that Beijing is scared to death of floating its currency, the PRC can’t spend at home the money they get from the world. They physically can’t. If they tried, the foreign money would end up right back with the central government, by law.

That leaves China unavoidably sitting on a huge pile of (mostly) dollars and there’s only one economy in the world big and solid enough to absorb it back – ours. They’re not lending to us, they’re investing in the only place they can. Our deficit is an American weakness but the PRC’s bond purchases are a Chinese weakness and an American strength.

And let’s not forget where the money comes from — us. Most of China’s pile of foreign money can be traced back to the bilateral trade gap. Beyond dollars, China relies on the American market for millions of its best jobs. China depends on us for these jobs, for our bond market, and for the dollar itself, which the Chinese currency is pegged to. We need them to keep our interest rates two points lower than where they should be and to finance deficits we shouldn’t be running.

My media friends: if you’re still having trouble with this, please call someone who knows what they’re talking about.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2009/11/19/fyi-america-media-china-is-30-years-behind/

URLs in this post:

[1] didn’t accomplish much: http://www.nypost.com/p/news/opinion/opedcolumnists/china_kowtow_JpkM6Xk80cogXfEFsDvEUO

[2] claiming the U.S. is economically subservient to the PRC: http://www.nytimes.com/2009/11/15/world/asia/15china.html

[3] stopped saying this: http://www.heritage.org/Research/AsiaandthePacific/wm2696.cfm

[4] China has no choice but to buy those bonds: http://www.heritage.org/Press/Commentary/ed031609b.cfm

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