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The Great China Debate
THE WOBBLY DRAGON
Arvind Subramanian claims that China will unquestionably replace the United States as the dominant global power in the next two decades (“The Inevitable Superpower,” September/October 2011). He is right that if the U.S. economy continues on its current trajectory, the United States will not be able to maintain its position of global leadership. But he is far too bullish on China. Subramanian overlooks Chinese policies that will complicate the country’s economic rise and ignores the possibility that Chinese growth will simply stop. And he uses a definition of “dominance” that bears little resemblance to the U.S.-style preeminence he sees China assuming.
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.
The biggest flaw in Subramanian’s index of dominance is the importance he assigns to China’s status as a net creditor. Based on this alone, he is prepared to say that China’s economic strength is already comparable to that of the United States. But China’s creditor status does not make up for the fact that its economy is presently less than half the size of the United States’ and its people are barely one-tenth as wealthy as Americans.
Creditor status is also a misleading metric by which to judge China because it is usually used to describe financially open economies, and China is largely closed. Countries with open economies can invest their money in many places. Beijing, because it cannot spend its foreign reserves at home, is forced to keep buying U.S. Treasury bonds.