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7 simple questions

and answers to
understand China and
the U.S.
If American political candidates have a favorite punching bag, it's
China. Wonkblog's Ana Swanson explains why so many candidates
change their tune once elected, and just how important the U.S.-China
relationship really is. (Jorge Ribas/The Washington Post)

The United States is rolling out the red carpet this week for the leader
of the worlds most populous country. Chinese President Xi Jinping
will first visit with tech executives and other industry leaders in
Seattle, then head to Washington to meet with President Obama.
The meeting is a touchstone moment in an increasingly tumultuous
relationship. The Obama administration has been preparing
sanctions against China following a wave of cyber-espionage from
Chinese hackers. And China has sparked the ire of U.S. businesses
and politicians by devaluing its currency and favoring Chinese
businesses over foreign ones.
Despite the tension, China remains one of the most important
countries in the world for Americans. China is so big and fastchanging that its actions ripple around the world and influence life
for average Americans determining the price of things we buy,
influencing what we make at our jobs, even changing the quality of
the air we breathe.
But maybe because of its size, or its distance, or its complexity, it can
be hard to grasp exactly why China matters. Here are seven questions

and answers that will bring you up to speed on the state of


China, and America's relationship with it.
1. Why does China matter? | 2. Is China still a poor country, or is it
rich and powerful? | 3. What do the Chinese really want? | 4. Is China
still communist?| 5. Is China's economy in trouble? | 6. Will China
surpass the U.S. as the world's superpower? | 7. Should the U.S. view
China as a threat or an opportunity?

1. Why does China matter?


For America, China is arguably the most important country in the
world.
One reason is that China is just really, really big. One in five of all the
people on the Earth lives in China. Its the worlds second-largest
economy after the U.S., accounting for about 12 percent of the world
economy and about a quarter of global growth in recent years. It
is Americas second-largest trading partner.
China is also important because its incredible pace of growth in
recent years is transforming not just the lives of its own people, but
also of people all around the world.
One of the main ways China influences other countries is through
trade and business ties. China has long been known as the factory to
the world, pumping out a disproportionate share of the world's
iPhones, clothing, shrimp and Christmas decorations.
The influx of cheap Chinese imports has helped some Americans and
hurt others. It has raised standards of living for many Americans,

allowing them to afford all kinds of things they couldn't have


purchased before. It has alsosupported American jobs in fields like
transportation, retail, construction and finance.
But it has meant a loss of jobs in manufacturing. The share of
Americans working in manufacturing fell from more than 13 percent
in the late 1980s to 8.4 percent in 2007, as trade with China
increased and its imports into the U.S. soared, as this graph shows:

The China Syndrome: Local Labor Market Effects


of Import Competition in the United States,
http://economics.mit.edu/files/6613

The lesser-known side of the story is that China is also now a major
consumer of U.S. goods. About one-quarter of the soybeans grown in
the U.S. go to China, as well as one in five of planes manufactured by
Boeing. Apple now sells more iPhones in China than in the U.S. China

is also a big consumer of American services, like education: One in


three foreign students in the U.S. is now from China.
No matter what kind of business you look at, China probably affects
it, says Scott Kennedy, deputy director of the Freeman Chair in China
Studies at the Center for Strategic and International Studies, a
Washington think tank. Even if youre not doing business in China,
youre most likely facing some kind of Chinese competition, or
Chinas effect on the global economy affects your sector.
Another way China is reshaping the world is through its voracious
appetite for resources, to feed its factories and build new roads and
cities. China accounts for about half of the aluminum, copper, nickel,
steel and concrete used worldwide each year, making it a major
customer for resource-rich countries like Australia and Brazil.

Visual Capitalist, http://www.visualcapitalist.com/china-consumes-mindboggling-amounts-of-raw-materials-chart/

China's appetite for resources is so big that the country actually used
more concrete in the last three years than the U.S. did in the entire
20th century. (This animation, which shows how Shanghai
transformed from 1987 to 2013, helps explain how that might be
possible.)

1987 (Reuters); July 31, 2013. (Carlos Barria/Reuters)

China is important to the U.S. for security reasons, too. China is now
the dominant power in East Asia, a region with close U.S. allies and
vital shipping lanes.
China and the U.S. have some serious conflicts, for example over
cyber attacks on government and business secrets, and Chinas
clashes with its neighbors over territory in the East China Sea and
South China Sea. But the U.S. and China cooperate on issues like
climate change and counter-terrorism, and China has supported U.S.
led efforts to contain North Korea's and Iran's nuclear programs.

2. Is China still a poor country, or


is it rich and powerful?

China, on the whole, is certainly a powerful country able to forge


new trade agreements, launch new international institutions,
and send probes into space. But on an individual level, its people are
not that rich at least not yet.
In fact, the average American earned more than four times as much
as the average Chinese person did in 2013, making $53,000 vs.
$11,885. (This is on a purchasing power parity basis, which actually
makes those in poorer countries seem relatively richer, since it
accounts for the cheaper cost of many goods and services in poorer
countries.)
Those income levels might seem low for an American, but for the
Chinese they are actually a huge improvement. Back in 2000, an
average American was earning 13 times as much as the average
Chinese; in 1980, the difference was 42 times.

How many times wealthier is the average American than the


average Chinese?
In 1980, the average American earned $12,575.57 per year in
current international dollars, while the average Chinese earned
$302.31 -- a gap of 42 times. But by 2015, this gap had shrunk to
four times.

In the 1970s, average Chinese aspired to buy what were called the
four musts: a bicycle, a radio, a wristwatch and a sewing machine.
By the 1980s, that list included a washing machine and a television,
and today people aspire to afford cars and international vacations.
This growth in incomes over the past 40 years has lifted 500 million
people in China out of poverty. The Chinese are becoming a true
middle class in a global sense, earning more than India, Africa and
much of the Asia-Pacific but less than Europe and the U.S., as the

graph below shows. The chart shows global wealth broken down by
decile, or every 10 percent of the world wealth distribution.

Credit Suisse 2014 Global Wealth report, https://publications.creditsuisse.com/tasks/render/file/?fileID=60931FDE-A2D2-F568B041B58C5EA591A4

But of course, averaging things obscures the real situation for a lot of
people. China is now one of the worlds more unequal countries.
Much of the wealth and the countrys new crop of millionaires is
concentrated on the eastern coast, while in Chinas interior hundreds
of millions of people are still basically subsistence farmers.

Here's a map that shows how that wealth is concentrated. The darker
blue areas along the coast are the cities of Beijing and Tianjin in the
north, and the city of Shanghai in the middle, where average incomes
are more than three times as much as the interior:

Looking at China from the U.S., what we see most is Chinas


impressive economic growth and expanding international influence.
We rarely see the reality on the ground that internally, China faces
many challenges and quite a bit of disorder.
China faces a whole host of problems that go along with being a
rapidly developing and a relatively poor country. For example, China
struggles to provide the public services that Americans take for
granted, like public education for all, safe drinking water, and decent
medical care. And while the Chinese government may seem allpowerful, its influence only goes so far. Many people still evade
income or real estate taxes with impunity, while many businesses
shirk government regulations.

3. What do the Chinese really


want?
The simple answer is a lot of different things, because there isnt
just one China. China can often seem monolithic from the outside,
but internally its a diverse country where people have lots of
different opinions, even if they cant act on them politically.
When it comes to Chinas leaders, its safe to say they want what any
government around the world wants: to stay in power.

President Obama with Chinese President Xi Jinping in Beijing. (Andy


Wong/AP)

In practice, that has meant delivering economic growth and raising


standards of living. For China's current leader, Xi Jinping, it has also
meant stamping out corruption, which many people believe was
eroding the party's popularity. Since entering office 2 years ago, Xi
has launched an extensive crackdown on corruption,
investigating tens of thousands of Chinese including Xi's own
political enemies.
China has become more assertive overseas and repressive at
home under Xi's authority. It's clear that he, and many other Chinese
as well, want their country to be restored to what they see as its
rightful position as one of the world's great powers a broad goal of
national rejuvenation that Xi has coined "the Chinese dream."

Americans tend to think of Chinas rise as happening in the past few


decades, but many Chinese have a longer memory. China has one of
the worlds oldest civilizations. To those with a long view of history,
China's position as a relatively poor country in the early 20th century
is the aberration, following thousands of years when the country was
without question one of the world's great powers. The chart below
shows just how dominant China's economy has been for the last
2,000 years:

Michael Cembalest, JP Morgan

In fact, Chinese call the period of history between 1839, when China
lost parts of its territory to foreign countries in the first Opium War,
and 1949, when the Communist revolution occurred, The Century of
Humiliation. This memory of humiliation at the hands of foreign
powers often goes hand-in-hand in China with nationalism and antiforeign sentiment.
So restoring China's international luster is a priority of the
government and regular people alike. However, most Chinese are still

far more concerned with everyday challenges, like housing prices and
job opportunities.
For most people, scandals that impact daily life like villages with
soaring cancer rates, or tainted infant formula are more keenly felt
than political issues. In fact, when Chinese gather to protest, the
cause is often pollution,working conditions or real estate prices.

4. Is China still communist?


For a country that nominally follows communism, China has a lot of
Ferraris. That's because the Chinese economic system has changed
dramatically since communism the philosophy spawned by Karl
Marx which argues that workers should collectively own the means of
production, like factories, property and machines first took
over the country.
The People's Republic of China was founded in 1949 after several
decades of bloody conflict between the Communist Party of China
and a group called the Nationalists. After the communists finally
won, the Nationalists fled to Taiwan and founded the Republic of
China, which the U.S. supported as the legitimate Chinese
government for decades.
Under its new leader, Mao Zedong, China closed itself off to the
West and dramatically reorganized its society. Workers initially lived
in communes organized around farms or factories. People didn't use
money to buy things, but were given rations of food and other small
necessities. The state determined what jobs people did, what they ate,
even what songs they sang:

Mao ruled China for a quarter of a century. While he helped


modernize China in some ways educating women, and establishing
a basic system of public health, for example he also presided over
some ghastly moments in history, including a famine that may have
killed 36 million to 45 million people. The official line in China is still
that Mao was 70 percent correct and 30 percent wrong.
In the late 1970s, Mao died. A man named Deng Xiaoping (xiao is
pronounced like the first syllable in shower) took over and began
opening up China to the outside world.
Deng believed strongly in the communist party, but he was also a
pragmatist who wanted to lift China out of poverty. He famously said,
It doesn't matter whether a cat is white or black, as long as it catches
mice in other words, that China could adopt any system that
worked, be it communist or capitalist. He also coined the phrase that
has basically become Chinas mission statement: To get rich is
glorious!

Chinese leader Deng Xiaoping tries on a cowboy hat, a symbol of the


U.S., at a rodeo in Simonton, Tex., in 1979. (AP)

To help people get rich, Deng began allowing foreign investment in


Chinas coastal areas, and loosened restrictions on the kinds of things
people could buy and sell, and the types of jobs they could
do. Chinese agriculture boomed as farmers were rewarded for their
sales, village collectives began manufacturing TVs and other
appliances, and foreign-funded factories cropped along China's coast.
China changed and opened up a lot, but the old rules were
altered piece by piece, rather than being fully abandoned. Thats why
the country today is still a bewildering mix of capitalist free markets
in some parts of the economy and tight state control in others.
There are some vestiges of communism in China that Westerners find
perplexing. For example, the party actually owns all the land in
China. Rural farmers can't sell their land, because farmland is
technically owned by everyone. And when city dwellers buy

apartments, they are technically only leasing them from the


government for 70 years.
But while China is, in practice, mostly capitalist, the Communist
Party still rules all.
The party is ultimately in control of the government, the military and
many businesses. Most importantly, the party is in charge of
appointing almost every important person to their position, including
government ministers, CEOs, university presidents and newspaper
publishers. It is also in charge of deciding who gets promoted in the
party itself.
About 6 percent of Chinese people are members of the Communist
Party a group of 86 million that includes almost all government
officials, business leaders and other social elite. Most government
officials have a position both within the party and the government.
For example, when Chinas leader, Xi Jinping, comes to the U.S. he
will use his government title of president, because thats more
familiar to Americans. But in China, his most important position is
general secretary of the Communist Party.
China has promised to open up more of its markets to foreign
competition, but dont expect it to adopt a Western system anytime
soon. In the nearly three years that Xi Jinping has been in power, he
has strengthened his and the partys control over Chinese politics,
business and the law.

5. Is China's economy in trouble?

You may have heard recently that the Chinese economy has some
problems. That's true, but it also still has a lot of potential.
Chinas growth is slowing down. Following decades of double-digit
growth, Chinas economic growth slowed to 7.7 percent last year, and
shows signs of decelerating further. This has countries around the
world worried, especially countries that export a lot of resources to
China, like Australia or Brazil. But for China, the growth slowdown is
not, in itself, necessarily a bad thing.
For one thing, slowing down is pretty natural after so many years of
rapid growth. Chinas growth has been, in every sense, extraordinary.
The country experienced an eight-fold increase in living standards in
30 years an increase that took the U.S. 122 years and Japan about
80. As economist Barry Naughton puts it, Chinas growth is slowing
in part because it has graduated early.
As Chinas economy has developed, the wages its workers earn have
risen, too. This is great for average Chinese it means they can
afford better food, houses, cars and health care but it also means
that low-cost manufacturing jobs are tending to leave China for
lower-cost countries like Vietnam, Bangladesh, even Mexico. China
has also exhausted most of what economists call catch-up growth
from acquiring the technologies of more advanced markets. As
countries catch up and get richer, their growth just tends to slow.
The problem is where China chooses to go from here. The country
needs to develop new sources of growth that are consistent with being
a wealthier country, with a more skilled and higher paid workforce.
But China's progress toward this goal is uneven and uncertain. China
wants to keep its population fully employed. But instead of putting
energy into finding new sources of growth for the economy, the

government has often turned to wasteful and heavy-handed methods


for propping up growth.
For example, as Chinas exports to the world slowed with the global
financial crisis, the country shifted to pumping a lot of money into
investment in infrastructure, housing and manufacturing capacity to
prop up growth. Many of those investments were useful and
profitable, but others were not, and as time went on, they became less
so. China built bridges to nowhere, stadiums that stand empty, and
its infamous "ghost cities" newly built cities with no one living in
them. In a country where many people are still relatively poor, many
of these investments were a tragic waste of money.
In the short term this kind of activity is recorded as economic growth,
but in the long run it is obviously wasteful. These activities have
caused the debt owned by the government, banks, corporations and
households to balloon to282 percent the size of the economy, a far
higher debt burden than most developing countries, as well as
Australia, the U.S., Germany or Canada, as the graph below shows.
An unknown amount of these loans will probably never be paid back.

McKinsey and Company,

http://www.mckinsey.com/insights/economic_studies/debt_and_not_muc
h_deleveraging

Instead of continuing to pump money into infrastructure, China


needs to find new sources of growth that are consistent with being a
wealthier country. That entails opening up new parts of the economy
to private companies to create jobs that require more skills and offer
higher pay, like those involving the service sector, entrepreneurship
and innovation.
There are certain changes that China could make to jump-start
growth. It could, for example, allow rural farmers to buy and sell their
own land, or open up sectors dominated by one or a few state owned
companies, like telecom, to new competitors.
In 2013, Chinas top leaders made a high-level pledge to let the
market play a decisive role, a change that would help the countrys
economy shift in this kind of direction. However, these reforms
mostly have yet to be realized. People are worried about whether
China can pull off this economic transition in the future, and those
concerns have contributed to a volatile stock marketand a lot
of money flowing out of the country.
China faces other challenges. For one, its population is aging rapidly,
in part due to a policy that limited Chinese parents to having only one
child. That means that a smaller population of working people will
soon have to support a huge numbers of retirees, as well as
themselves, a dynamic that could sink the economy. For many years,
economists have been asking, Will China get old before it gets rich?
The answer is still not clear.

6. Will China surpass the U.S. as


the world's superpower?
Recent polls show Americans are very worried about Chinese
cyberattacks, its growing military power, and the amount of
American debt it holds though actually, the Fed holds a lot more
U.S. debt than China and Japan do.

Pew Global, http://www.pewglobal.org/2015/09/09/americans-concernsabout-china-economics-cyberattacks-human-rights-top-thelist/problems-battery-by-u-s-party/

Interestingly, many Americans appear to believe that China is already


the world's superpower. But this isn't true, and it seems unlikely to
happen any time soon.

The U.S. is still, by almost every measure, the worlds superpower,


wielding much more military might, economic power, and influence
over other countries than China has. We may be gradually moving
toward a bipolar world where the U.S. and China share that
distinction equally, but were not quite there yet.
"I think the reality is that China is not nearly as strong as it wants to
be perceived and as many U.S. analysts like to play them up,"
says Rodger Baker, the vice president of analysis at Stratfor,
a geopolitical intelligence and advisory firm.
What is clear is that China has become a strong regional power, able
to hold its own against the U.S. in East Asia. This continues to be an
area of conflict. The U.S. wants to remain centrally involved in Asia,
but China wants to control its own region and prevent the U.S. from
being able to contain it, says Baker.
In the South China Sea and East China Sea, where China claims as its
own territory waters that are also claimed by U.S. allies, including
South Korea, Japan and the Philippines, China is trying to keep the
U.S. from intervening so close to its territory, says Baker. "Its not on
the global scale that China would be a challenge to the U.S., but
certainly in the waters around the South China Sea and East China
Sea," he said.

7. Should the U.S. view China as a


threat or an opportunity?
The U.S.-China relationship is broad, deep and complex, with tons of
ties between our countries, including business partnerships, study

abroad programs, co-produced movies, military exercises, counterterrorism efforts, and joint studies of disease.
Some parts of the U.S.-China relationship are troubled and
adversarial for example, it's not yet clear how the countries will
handle rising tensions over hacking attacks and the looming threat of
cyber warfare, or territorial disputes in the South and East China Sea.
The countries have some significant economic disputes. U.S.
politicians decried China's recent devaluation of its currency
though China claimed the move was actually directed at reforming
the way it manages its currency, in line with international
recommendations. The U.S. business community protests that the
playing field in China for local and foreign businesses is far from
even, and some have begun pushing for the idea of reciprocity that
when China bans a U.S. business, the U.S. should begin banning
Chinese businesses, too.
The U.S. and China also have significant ideological differences that
make the relationship hard to navigate. Chinas tight state control on
religion, the press and democracy rankle Americans. These conflicts
have only gotten worse under Xi Jinping, who has led prosecutions
of lawyers, journalists, NGO workers and foreign business people for
failing to fall in line.
The idea that the political system in China, the second-largest
economy in the world and the most populous country in the world, "is
moving in a direction that is so antithetical to American values is a
scary thought," says Kenneth Lieberthal, a senior fellow at the
Brookings Institution.
Overall, the countries have basic conflict over the how much a
government should interfere in a society, says Kennedy of CSIS.

"China gives the state an enormous degree of latitude and discretion


and a right to intervene on any question in any time. For the U.S.,
that right of intervention is constrained with rights that members of
society have and external sources of accountability against the state."
But at the same time, however, there isnt as much ideological
distance between China and the U.S. as, for example, the U.S. once
had with the Soviet Union. China has mostly embraced capitalism
and many U.S. companies. With a few exceptions, it has mostly
participated in and supported the international institutions created
by the U.S. and Europe.
And the U.S.-China relationship also brings substantial benefits to
the U.S., both economically and strategically.
China has supported the U.S. efforts on nuclear non-proliferation in
Iran and North Korea. The countries have cooperated on counterterrorism efforts in the Middle East and Central Asia, and fighting
pirates off the coast of Africa. China assisted the U.S. with the Ebola
outbreak in Africa.
The countries have forged new agreements on climate change. China
is an essential partner in this: China uses almost as much coal as the
rest of the world combined, and it recently surpassed the U.S. as the
world's largest carbon emitter.
The economies are so tied through investment, debt, business deals
and trade that they may very well rise or sink together. On the
economic side, China is now investing more money in the U.S. than
the U.S. is in China. Given all of these ties, its in the U.S. interest to
work with China, at least sometimes, as a close partner.

Big global issues and regional issues become more manageable when
the U.S. and China actively cooperate or at least work in parallel, and
become less manageable and far more dangerous if the U.S. and
China do not cooperate, says Lieberthal of Brookings. While the
record is mixed, on things like counter-terrorism, climate and global
health issues, the cooperation exceeds the competition.
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