The Great China Debate

Foreign Affairs puts two contesting opinions about China’s rise and global order head-to-head in a recent article. The piece begins with Heritage Foundation research fellow Derek Scissors‘ reaction to Arvind Subramanian‘s earlier article “The Inevitable Superpower: Why China’s Rise is a Sure Thing.” In his response, Scissors identifies flaws in Subramanian’s estimation of China’s future:

Consider how Subramanian measures China’s growing power. He cites the ability of Beijing to convince African countries to recognize it instead of Taipei, but outmuscling Taiwan diplomatically is hardly a sign of global leadership. He sees the ease with which China undervalues the yuan by pegging it to the dollar as proof of the country’s strength, but hiding behind a foreign currency is not a sign of economic might. He forecasts that China in 2030 will have an economy that is one-third larger than the United States’, yet he admits that it will remain only half as wealthy. These are notable trends, to be sure, but not ones that indicate China will attain anything close to the position the United States has held over the past 60 years.

[…]By underemphasizing or ignoring China’s various weaknesses, Subramanian underestimates the United States’ ability to influence the competition with China. That said, his criticisms of the United States are valid; indeed, his baseline prediction of U.S. growth at 2.5 percent annually may be too optimistic. Crippled by debt, the United States faces a period of stagnation. If the overall economy remains sluggish, a lack of import growth will cause trade to lag and further reduce the United States’ global influence.

Subramanian is then given a chance to stand up for his arguments, point by point. He closes with the following statement:

Finally, Scissors argues that China will not be able to exercise economic dominance in the way that the United States has so long as it lacks the ability to create technology. True, innovation can give a country a unique kind of influence by inspiring others to want what it wants. As long as China remains politically closed, with a state-dominated economy and a lackluster technology sector, it cannot hope to attain this kind of dominance.

But my article focuses on a different kind of dominance: the ability to get others to do what you want or to prevent them from forcing you to do what you do not want. With its large and rapidly growing economy, China already wields such power. Consider, for example, how China’s depressed exchange rate hurts economies from the United States to Bangladesh. Yet despite protests from across the world, Beijing continues to do what it wants. If that’s not dominance, what is?

The two China focused researchers and their respective opinions can be found in other recent coverage of China’s economic rise. China Real Time Report relays Scissors argument that China’s GDP data is faulty, and then proceeds to pick it apart:

In sum, Mr. Scissors’ criticisms can be boiled down to three points:

-There are other indicators that suggest growth is lower than the government claims – growth numbers for oil imports, car sales and ship exports are all significantly lower than GDP.

-Foreign exchange reserves fell in the fourth quarter, evidence of capital flight – which suggests China’s economy was less appealing to investors than even dismal alternatives available elsewhere.

-China’s decision to ease policy late in the year hints that growth must have been worse than the official figures are letting on.

While at first glance all three points are striking, none is the smoking gun that convicts China of fabricating its 2011 GDP data[…]

A Livemint.com post about China’s place as the 21st century’s economic superpower draws from Subramanian’s research, and claims that the Chinese miracle could provide the world with a lesson:

Thirty years back, China accounted for barely 2.2% of the global gross domestic product (GDP), while the US contributed almost 25%. Chances are that before the end of this decade, Chinese GDP may surpass that of the US. Arvind Subramanian of the Peterson Institute for International Economics has estimated that, in purchasing power parity terms, the Chinese output already exceeds that of the US. Subramanian forecasts that, by 2030, China would account for 18% of global GDP, the US about 10%, and India, the third largest, almost 6%, just about one-third of China’s. By then, our population would likely be more than China’s, and the gap in per capita incomes would be much higher, even if we manage to maintain our growth rate. In fact, with each passing year the clubbing of India and China by the media is becoming less realistic—in terms of literacy, consistent growth, financial power, infrastructure, life expectancy and, indeed, any other economic criterion one may choose.

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