January 20, 2011

America’s Top 7 Economic Issues With China

The situation may not be as dire as many pundits make out

It's no longer disparagingly referred to as Red China, but we still have a few issues to sort out with the land of the tiger (mothers). Should we embrace China as our partner, or prepare for the eventual arrival of our Han overlords?

President Hu Jintao’s visit to our nation’s capital is a good reason to run through the source of Sino-American tension. Here are seven issues causing the most strain.

1).“Buddy, Can You Spare a Yuan?”—When it comes to the thorny question of Chinese currency, two camps emerge; those that take a hard line against China’s currency manipulation (undervalued by as much as 40% by some estimates), and those that think we’re needlessly antagonizing a major trading partner.

As The New York Timesnotes, China has been holding down the value the yuan for years, making Chinese exports to the United States cheaper and American exports to China more expensive. But it argues the issue is overblown.

The truth, according to America’s paper of record, is that the exchange rate is not the main problem for American companies hoping to sell more products in China and, in the process, create more jobs in this country. It therefore should not be the focus of the state visit.  Instead, it should be …

2). Pirates of the South China Sea—For the United States, the No. 1 problem with China’s economy is probably intellectual property theft, says the Gray Lady. Technology companies, for example, continue to notice Chinese government agencies downloading software updates for programs they have never bought, at least not legally.

No wonder China has become the world’s second-largest market for computer hardware sales—but is only the eighth-largest for software sales.

3). Tipping the Scales—"Rebalancing" in the Sino-American context is the notion that Americans need to consume less and Chinese need to consume more. This is typically presented as a question of aggregate American and Chinese levels of investment, household savings and consumption, plus the exchange. And it's unlikely to happen anytime soon, writes Joseph Sternberg in the Wall Street Journal.

“To start, China lacks the infrastructure of modern consumer finance, and is years—possibly decades—away from building it to the standards of the developed world, he writes. “Outstanding consumer credit stands at about 13% of GDP, according to a 2009 study from McKinsey & Co., compared to 48% in Malaysia and 70% in South Korea.”

In other words, they still fall far short of other Asian economies, let alone the western hemisphere.

4). The Great Wall of China—So-called rare earth metals, of which China has an abundance, are the latest exports to get whacked with high tariffs. They’re desperately needed for the production of high tech devices, and China knows it. This comes after they placed tariffs on chemicals and fertilizers. What’s next, a tariff on all the American flags they produce?

Not to worry, the president responded swiftly with a tariff on tires. Of course, they’re not bicycle tires, so how much good will it really do?

5). We’re Not Worthy—Andrew Kohut of the Pew Research Center, writing in the Wall Street Journal, noted that a plurality of Americans, 47%, are under the erroneous impression that China is the world's leading economy. As the Journal notes, “news reports regarding Chinese military strides, or the academic prowess of Shanghai high school students, contribute to Western perceptions of Chinese ascendancy. So does the false notion that Beijing's holdings of U.S. debt amounts to a sword of Damocles over Washington's head.”

And as we referred to in our opening, tough-as-nails Chinese mothers are raising child prodigies while their Western counterparts indulge their kids with lessons in finger-painting.

“Such fretting does have its uses,” according to the Journal. “Free societies that constantly adapt to swings in political opinion, innovations in the marketplace, evolving tastes and norms and the arrival of new neighbors are societies that almost never crack. Ours hasn't since Fort Sumter was bombarded 150 years ago this April.”

6). Human Rights—The image of Lady Liberty tumbling under Tiananmen Square tanks still resonates with many Americans. The guilt and self-flagellation that comes from trading with such a flagrant abuser of human rights is something with which the country cannot seem to reconcile. Whether it’s the "disappearing" of political prisoners or the government’s treatment of the Falun Gong religious sect, its limitations on basic civil liberties has many American’s rightly wondering if dealing with the Chinese is in essence accepting blood money. President Obama raised the issue this week. We hope (but doubt) it will have an effect.

7). Support for North Korea—Like a loyal friend with a chemical imbalance who nonetheless always has your back, having a crazy country in your corner comes with advantages. The Chinese are playing this one to the hilt. Despite assurances that they can deliver on six-party talks, China has yet to get Kim Jong-Il back to the negotiating table. They thankfully reined him in over the recent bombing of Yeonpyeong Island in South Korea, but have done little else with the pariah nation.  

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