Earlier this year, when Chinese president Hu Jintao visited the United States, a political cartoon made rounds in American newspapers. Mr. Hu was shown driving up in a limo full of U.S. Treasury bonds, with a bubble over the White House reading: “Shape up, everyone. The landlord is here.”
Indeed, China’s hard currency reserves, totaling $875 billion in mid-May, are held mostly in U.S. government debt.
China has come seemingly from nowhere to emerge as one of the world’s most important economic players. Massive fixed asset investment, which has included over $50 billion of direct foreign investment annually, has turned it into the world’s leading producer of textiles and manufactured goods. It is now the second largest economy, set later in this century to surpass the United States by sheer economic size, if not on a per capita basis. It is the world’s second largest consumer of crude oil as well as second largest auto market.
Fear and Admiration
Not surprisingly, in some circles China has been touted as the economic leader of the future, destined to eclipse the United States in the foreseeable future. It is not surprising because similar claims were made two decades ago about Japan. A few years ago, some economists declared that the creation of a single European currency unit, the euro, would mark the demise of the greenback as a global reserve currency.
The awe of China’s economic miracle has prompted its admirers to praise even those aspects of the Chinese economic and political system that only recently were seen as its fatal flaws. Even China’s communist system, repression and lack of freedom are somehow now seen as great advantages, while corrupt and incompetent party apparatchiks are presented as far-sighted economic managers capable of smoothly guiding an enormous and complex nation from the Middle Ages straight to the cutting edge of modernity. These are, it shouldn’t be forgotten, unreconstructed heirs to the guys who gave China the Great Leap Forward, the Cultural Revolution and the family planning system that created a society where the young males heavily outnumber females.
If China runs into a financial, economic or political crisis — as other Asian nations, from Japan to South Korea and Thailand have done in the past — a rigid communist system run by party hacks may prove disastrously inadequate in an emergency.
But in order to envision where China will go from here, we must first understand how it has been able to attain spectacular economic growth without first abandoning a repressive Communist system.