Guest Post by Oliver Lough: Stuck At The Hip?

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chimerica.jpg
The idea of being attached to a Siamese twin you’re not particularly fond of is a fairly horrifying one to say the least. Yet for the past decade or more, this is exactly the predicament in which the U.S. and China have found themselves.
“Chimerica” is a term concocted by the British historian and economist Niall Ferguson back in 2007. Ferguson coined the phrase to draw attention to the fact that intertwined financial relations have resulted in the countries working as a single economic superstructure, with China doing the saving and the States doing the spending. Depending on how you look at it, this is anything from a match made in heaven to MAD in fiscal form.
The big question zinging around the op-eds and magazines since the trauma of last winter is where this relationship is headed. Ferguson himself annulled the marriage in an August Newsweek article, warning that China could, like pre-WWI Germany, elect instead to cut a solo path for itself as an aggressive expansionist power (there so many holes in this analogy it’s barely worth counting them, but The Atlantic‘s James Fallows has a go here).
It is true that China has been showing signs of trying to loosen the bonds that tie it so closely to America’s fortunes. Earlier this year, the head of China’s central bank Zhou Xiaochuan published a fairly heavyweight paper on how the world could go about creating a synthetic alternative to the dollar as the world’s currency reserve (‘we’re done buying your debt’). In the meantime, China’s leaders have been beating the drum on boosting domestic consumption ever since they announced a $585 billion stimulus package aimed at doing just that (‘we’re done making your stuff’).
It’s heady stuff – a Sino-US decoupling would mean big changes in both economic and geopolitical terms. But there are more than a few reasons to be skeptical, at least in the medium term.
Discounting for a moment the global currency issue (even Zhou admits it’s a slow burner), a big question mark remains how quickly China can boost its domestic consumption. China’s leaders have been reporting impressive increases in retail sales recently, but as Gordon Chang points out in the New York Times, their sums don’t really add up.
As far as I can tell, there are multiple and deeply ingrained systemic reasons why extracting itself from its current export-oriented model is going to be a very long, and probably quite painful process for China. Tom Friedman has observed with weak-kneed admiration the ability of autocracies to, you know, really get things done. But while this certainly applies to nice, visible things like rail systems and stadiums, solving complex problems with multiple socioeconomic moving parts is another question entirely:

1. China’s policy micromanagement is actually very poor, with implementation at local and provincial level often hopelessly diverted from its original aims by a multitude of competing interests.
2. The inertia behind exports is also huge – dismantling or even readjusting the manufacturing sector as it currently stands will likely mean major job losses – not good in a country where social stability is on a knife-edge. Given how much of China’s stimulus money ended up propping up the existing system, this is clearly not a risk Hu Jintao and co. are willing to take just yet.
3. China’s households account for only around 30% of GDP – one of the lowest ratios in the world. Even if they were spending every penny of their income, this would barely make a dent in the status quo.

For these and a dozen other reasons, this marriage looks safe, for the time being at least.
To discuss the U.S.-China marriage and its future prospects, the New America Foundation/American Strategy Program will host an event this Monday, October 19 from 12:15pm – 1:45pm. The event will feature Zachary Karabell, author of Superfusion: How China and America Became One Economy and Why the World’s Prosperity Depends Upon It.
The event will stream live here at The Washington Note.
— Oliver Lough

Comments

4 comments on “Guest Post by Oliver Lough: Stuck At The Hip?

  1. samuelburke says:

    from everything i read it seems that the chineese are ridding
    themselves of the dollars in their coffers by writing up deals with
    the rest of the world for the commodities that they will be
    needing to develop the infrastructrure of their underdeveloped
    country.
    “China overtakes the US as Brazil’s largest trading partner
    China has become Brazil’s most-important trading partner,
    disrupting a relationship between the United States and the Latin
    country that stretches back to the 1930s.
    By Malcolm Moore in Shanghai
    Last Updated: 9:57AM BST 10 May 2009
    Welber Barral, the Brazilian trade minister, said total trade
    between Brazil and China had amounted to $3.2bn (£2.14bn) in
    April, representing a near twelve-fold increase since 2001.
    The sum was greater than the $2.8 billion of imports and
    exports to the US and represented the second consecutive
    month that China had topped the trade table.
    “It is a historic moment,” he said, adding that he expected China
    to remain in pole position for the rest of the year because its
    economy is still growing healthily. “China is now a platinum
    account [for Brazil],” said Douglas Smith, a Latin American
    economist for Standard Chartered bank.
    The US has been Brazil’s principal trading partner for nearly 80
    years, but a sudden surge in Chinese demand for Brazilian iron
    ore in the first quarter of this year dislodged the Americans.
    The news is the latest sign of China’s increasing challenge to US
    hegemony in Latin America. China has been steadily increasing
    its sphere of influence and has become particularly close to the
    four “Red” South American countries: Venezuela, Bolivia, Ecuador
    and Peru.”
    http://www.telegraph.co.uk/finance/economics/5296515/
    China-overtakes-the-US-as-Brazils-largest-trading-
    partner.html

    Reply

  2. samuelburke says:

    “The 21st century belongs to China
    According to Rogers, the 19th century was the era of the British
    Empire and the 20th century was the U.S.’ heyday. But the 21st
    century is China’s (though the rest of Asia is definitely going to
    get a boost too).
    The reasons for this are many, but some points brought up by
    Rogers include the following:
    The Chinese want to live like we do;
    They are more eager to work;
    They are better at saving;
    There are 1.5 billion Chinese citizens (and 3 billion people in all
    of Asia), and we owe them money. They are, according to
    Rogers, “among the best capitalists in the world.”

    Reply

  3. WigWag says:

    The relationship between China and the West is endlessly fascinating.
    It’s important to remember that Confucius was teaching philosophy in China when Rome was a mere village and that the Chinese invented gunpowder and astronomy while Europe was still mired in the dark ages. Kublai Khan ruled over one of the largest empires the World had ever seen while Europeans were still convinced the world was flat.
    Misunderstandings between the West and China are virtually inevitable; the Obama Administration will have to take extraordinary care to make sure this relationship is managed correctly.
    One thing is clear; for the time being at least, neither side will succeed at getting an advantage over the other. China and the United States are far too interdependent for that. Decisions that are made by China and the United States will either benefit both sides or harm both sides; the idea that the United States can gain an advantage at the expense of China (or vice versa)just isn’t plausible.
    From the time of the Opium Wars (1839-1860) when the British had the audacity to try to monopolize the sale of Opium grown in India to China; to the time of the Boxer Rebellion (1899-1901) when a small group of religiously motivated zealots thought they could defeat the combined forces of Great Britain, Japan, Russia, France, the United States, Germany and Italy; misunderstanding between China and the West has been more the rule than the exception.
    In his book, “The Decline and Fall of the British Empire” Piers Brendon provides an interesting anecdote that I think provides a provocative metaphor for relations between China and the West today.
    Brendon describes the reaction that the Chinese and British had for each other when they first reestablished contact in 1816 after several centuries.
    “Mutual misunderstanding aggravated interracial contempt. The British were disgusted by the Chinese diet which included snakes, tortoises, dogs, cats, bats, newborn rats (known as “honey peepers”) and raw monkey brains but were convinced they would readily buy tweed. The Chinese thought that the British looked like devils, stank like corpses and probably had webbed feet. They also reckoned that a ban on the export of Chinese Rhubarb from Canton would probably bring England to a halt via an epidemic of constipation.”
    Hopefully Obama and company will do a better job of managing relations with China than the British did.

    Reply

  4. samuelburke says:

    U.S. deficit biggest since 1945
    Obama administration closes the books on fiscal 2009: Falling revenue plus soaring spending leads to a $1.42 trillion deficit.
    By Jeanne Sahadi, CNNMoney.com senior writer
    Last Updated: October 16, 2009: 5:04 PM ET
    NEW YORK (CNNMoney.com) — It’s officially official.
    The Obama administration on Friday said the government ran a $1.42 trillion deficit in fiscal year 2009.
    That made it the worst year on record since World War II, according to data from the Treasury and the White House Office of Management and Budget.
    Tax receipts for the year fell 16.6% overall, while spending soared 18.2% compared to fiscal year 2008. The causes: rising unemployment, the economic slowdown and the extraordinary measures taken by lawmakers to stem the economic meltdown that hit in fall 2008.
    Consequently, the annual deficit rose 212% to the record dollar amount of $1.42 trillion, from $455 billion a year earlier.
    As a share of the economy, the deficit accounted for 10% of gross domestic product, up from 3.2% in 2008. As breath-taking as that may be, it’s still not in the same stratosphere as the 1945 deficit, which hit 21% of GDP.
    http://jsmineset.com/

    Reply

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