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Q&A With Derek Scissors on China's Economy

Derek Scissors

  • Country: The United States
  • Title: Asia Economics Research Fellow, Heritage Foundation.
  • Education: Stanford University

Marc Richards: What hope does China have of becoming the global economic superpower, replacing the dominant role played by the United States? Is such a scenario inevitable, impossible, or neither? And will it depend on internal decisions the regime in Beijing takes or does not take?

A: You have half of it -- China's ascendance is neither inevitable nor impossible, and it will depend on policy choices. There is an obvious need for efficiency in China's use of natural resources, where water may become more important than energy. China will also increasingly need an efficient labor market. Demographic changes are going to first reduce labor force growth, then eventually cause an outright contraction. The other half of the story is U.S. domestic policy, but I'll stay on the western side of the Pacific.

Kazushi Minami: Although Beijing still controls the exchange rate of the renminbi, it has been slowly revaluing its currency since 2005. It seems that in the long run Beijing is shifting its currency policy to a free exchange rate. (The pace of its reform is slow because of the fear that a rapid economic reform could cause a collapse of the economy, as in the Soviet Union or Thailand.) Does this mean there is a possibility that Beijing will stop purchasing U.S. bonds in the near future?

Linda Morse: Where would China invest its money if not in U.S. Treasury bills and other U.S. investments?

A: The only place for China to invest the

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