Chapter 53 China: An Important Factor in Future World Changes

Falling U.S. house prices were the immediate cause of the recession, but that alone could not have triggered the 2008 global credit crisis.There is still controversy on this issue.Some believe that falling house prices are the culprit that triggered the credit crisis.But even if 5 million mortgages were repossessed in the U.S., even if the same happened in Western Europe, and even if economic activity would suffer as a result, and even developed countries would fall into a recession, the global financial system would not suffer from it. to the brink of collapse.Only because these home mortgages were used for further global credit, after a rapid and severe decline in house prices, the situation deteriorated equally quickly and severely.

After 1989, the fortunes and fortunes of state-owned enterprises in China and the United States were linked together.The balance of assets of the US government is more dependent on China.The Chinese economy has also become more vulnerable to the global economic system, which the Chinese government does not want to see and is completely unaware of.There is a sense of complacency in the United States that people think the risk has been eliminated.There is also an extremely confident mood in China, that the Chinese economy is immune to the influence of the global economy.The nationalization of Fannie Mae and Freddie Mac and the bursting of the global stock and bond market bubble showed that both views were wrong.

Without the trillions of dollars of Chinese government investment in the United States, the US government's ability to respond to the crisis would be even more limited.The liquidity that central banks pump into the global financial system also depends on countries with large surpluses, the largest of which is China.It was these injections of liquidity that prevented the collapse of the global financial system in October 2008.We can no longer ignore the existence of China as we did in the past, and we cannot ignore the integration of China and the United States.Developments in the real world cannot be as controllable as experiments in a laboratory, so it is futile for economists to predict the future based on past experience patterns.Related variables are always changing, and their own changes will affect the development trajectory of other variables.Reality may show similarities to history, but most of the time, reality is always different from history, making comparisons with history both incomplete and misleading.This is not to say that historical experience is useless, but that historical experience cannot be a decisive factor.If history could repeat itself, how would things be different today?If China hadn't continued to lend to the United States, and if China's domestic consumption hadn't grown, would the credit crisis have spread wider and deeper?Perhaps we have reason to answer yes, but we must admit that our world is a real world, not a hypothetical world that we want to be.

Some believe that the crisis is actually caused by an unhealthy economic relationship between the US and China.A long-term reliance on China's low-cost imports has driven U.S. consumer spending levels above income levels, and a long-term reliance on China's purchases of U.S. Treasury bonds has increased liquidity in the U.S. financial system.That's why many experts, from Wall Street to the World Bank, believe the global financial system has become fragile and has become too reliant on Chinese production and American consumption. However, the importance of Chinese consumption and the investment of the United States and other countries in the Chinese market is beyond most people's realization.China's economic growth is not as dependent on exports as Wall Street and many economists believe.It is reported that one-third of China's economic growth depends more on exports, but the actual figures are just the opposite. China's economic growth is very low on exports.Since some Chinese companies produce products for both domestic and international markets, it is impossible to calculate precise figures.There is no doubt that there are some Chinese companies that specialize in producing products that are sold to developed countries, and it is these companies that suffered the most from the global recession of 2008 and 2009.Businesses that mainly rely on foreign orders have been hit hard, with millions of workers reduced or even out of work.However, in November 2008, China announced that it would invest more than US$600 billion in infrastructure construction, and such a large-scale investment filled the gap.The Chinese government's ability to spend so much is largely due to the manufacturing capabilities of Chinese companies, but China's economic growth still begins with, and builds on, state spending.The United States has long disdained state-led capitalism, but recently the attitude of the US government has changed.The Chinese model has proven to be a more stable model, and the United States under Obama has begun to partially emulate the Chinese model, whether it is intentional or unintentional.

If the global financial system in 2008 remained as dependent on the United States as it was in the second half of the 20th century, the housing market collapse and credit crunch that began in the United States would almost certainly lead to a global recession.But that didn't happen.Despite panic in bond markets, stock markets down more than 50%, and severe shocks to economic activity, recessions did not occur in countries with abundant cash reserves and established domestic markets.These countries did not seek help from American or European capital, but solved their problems on their own.Brazilian President Lulada Silva, Indian Prime Minister Manmohan Singh and Chinese President Hu Jintao have shown resilience while expressing shock at the situation.The economies of their respective countries depend primarily on domestic markets rather than global capital markets, and on state spending rather than bank credit.At the same time, these countries also admit that despite the new growth of their respective economies, their sustainable and healthy development cannot be separated from the stability of the United States.This is one of the reasons why these countries are still committed to cooperating with the United States even as the US economy struggles.

Among the relations between the United States and the above-mentioned countries, the relationship between China and the United States is the most prominent.This is much like the special relationship between the United States and Britain before the outbreak of World War II.The challenge today is whether the new unity of "Central America" ​​will continue to develop or be restrained.Previously, neither China nor the United States had a strong awareness of Sino-U.S. integration, but in fact, the rapid development of Sino-U.S. integration has benefited both China and the United States.As people in both countries become more aware of Sino-U.S. integration, more people will feel uneasy about it, as demonstrated during the Beijing Olympics.

What China needs is a fundamental shift in attitude.Although China has developed rapidly in the past 20+ years, China still claims to be a poor country, still struggling to maintain its own development, or as one Chinese official said, China's current ability can only manage its own affairs .Undoubtedly, China is still poor on a per capita basis.Because China has hundreds of millions of people in agriculture, millions of people live on the fringes of the urban economy.However, the number of middle-class or upper-middle-class people in China has reached 300 million, which is equivalent to the population size of the United States or the European Union.In terms of purchasing power, the average annual income of hundreds of millions of Chinese has exceeded US$7,000.This may be a small figure compared with the nearly US$40,000 per capita annual income in the United States, but unlike the stagnant per capita income growth and rising living costs in the United States, the annual income of China's middle class is growing at a rate of 10%.Affected by the global recession in 2008 and 2009, China's economic growth slowed, but the growth momentum has not reversed. In 2008, the U.S. National Intelligence Council stated in its "2025 World Situation Forecast Report" that China will soon become the world's second largest economy and will surpass the United States to become the world's largest economy after 2030.

The forecast assumes that the current unprecedented shift in relative wealth and economic power from West to East will continue.This means that the target of the transfer is not only China, but also some resource-rich countries, such as the United Arab Emirates, Saudi Arabia, Brazil and Russia.Although the 2008 recession led to a sharp drop in commodity prices, raw material prices will continue to rise as India, China and other emerging countries take steps to stimulate their economies.Prices of commodities such as copper products had already surged in the spring of 2009 after the Chinese government unleashed massive stimulus spending, and the rise continued into the summer.After the credit crisis, China is likely to lead the global economic recovery.The U.S. National Intelligence Council concluded at the end of the report: "In the next 15 to 20 years, no country can influence the world like China." The response of the United States and other countries to this will determine the future state of the world.

Although U.S. intelligence agencies reasonably predict that China will be the most important factor in future world change, the report's analysis is still limited to the perspective of nation-states.This analysis does not take into account that national economies will become increasingly intertwined, capital flows will increase, and a common market will emerge.The report also fails to address the extent to which the Chinese and American economies have merged into a unique system.While the report also points to the rising power of non-state actors, including corporations, factors similar to “Central America” are not considered.Despite the addition of many realistic factors, nation-states with capital, governments, and armies will still be the main power in the future world.

Obviously, the status of nation-states will not be replaced anytime soon.Even as the EU is becoming a supranational actor, its internal member states remain independent, each with its own population.Faced with the 2008 recession, both China and the United States responded by strengthening national identity rather than weakening it.Both governments have made supporting the domestic economy a policy priority.But as we have seen, as the economic systems of various countries become increasingly complex and geographical restrictions are increasingly broken, loyalty to the nation-state does not mean that a country has the ability to solve the problems it faces alone.Governments around the world, especially those of large countries like China and the United States, are emphasizing national sovereignty, but the scope of their capabilities is increasingly extending beyond national boundaries.

Over the past few years, many have pondered the future of the United States and its place in the world.Few expect a recession in the first decade of the new century.The new millennium in the United States began with the bursting of the technology bubble, followed by a sharp drop in the stock market, a recession, and the terrorist attacks of 9/11. In 2002, the Enron and WorldCom scandals broke out, and the United States passed corresponding legislation in order to prevent such incidents from happening again. In 2003, the United States invaded Iraq.After the short-lived victory, the situation in Iraq began to let the Americans down, the number of casualties continued to increase, and the situation became increasingly chaotic.The warming of the real estate market in the following years temporarily eased the economic weakness, but the real bright spot of the US economy lies in the strengthening of overseas economic activities, especially in China. In 2007, while many American businesses remained highly profitable, millions of workers did not benefit from them. In the autumn of 2008, the economic crisis broke out. It should come as no surprise that much of the commentary on the future of the United States has focused on changes in US global power and status.Some are optimistic, emphasizing "the rise of other countries' power," while others are pessimistic, emphasizing "the decline and decline of American power."The election of Barack Obama as President of the United States in many ways reflects a collective recognition of Americans that the relative status of the United States in the world has changed.Unlike his predecessor Bush Jr., Obama bluntly admitted that the United States can neither solve the world's problems by itself, nor can it solve its own problems behind closed doors.The growth in wealth and influence of China, India, Russia, Brazil and many other petro-states has changed the face of the world.The very wrong decisions made by Wall Street financial institutions and financial regulators, as well as the behavior of millions of Americans to meet consumption needs beyond their financial means, have also changed the position of the United States in the world.Regardless of who is responsible, the result has been a marked decline in America's global financial and cultural standing. We have no reason to believe that these changes are only temporary.While some insist that once the financial overheating of the United States is over and the weaknesses of its financial system are addressed, the former global dominance of the United States will be restored and the rest of the world will continue to be centered on the United States. happened.The United States has maintained unrivaled conventional military power for decades, but force as a coercive force plays a more limited role in today's world than at any other time in human history.Unless the United States is willing to destroy its opponents at all costs, regardless of cost, casualties, and loss of moral standing, American military power can only be effective if the majority of the international community accepts it.Although the United States has the status of leading the world's economic pillar, no matter how powerful the United States' economic strength will be in the future, it will share the global space with new global capital. In addition, developments over the past two years have further deepened the interdependence between China and the United States.The advantages of large companies listed in the United States in the Chinese market are no longer obvious.The U.S. government’s emergency aid to Fannie Mae and Freddie Mac was largely to satisfy China’s interests, and China’s continued purchase of U.S. Treasury bonds during the economic crisis was not because of huge profits (in fact, they were not). Not because there is reason to believe that the U.S. economy will accelerate growth anytime soon (it didn’t) but because China cannot afford the consequences of a U.S. economic collapse.China is in an unfamiliar position, with the ability to float the US balance sheet and effectively bail out the world's largest economy.Over the past few decades, China has viewed the United States both as an important partner in the free market and as a powerful and threatening adversary.The path that China took in the past to focus on its own development is now unfeasible, because global governance is inseparable from the participation of this emerging power. The question now is whether the US will be able to make a similar adjustment.To be fair, China is more likely to adapt to changing circumstances than the United States.Although changes in the global balance force China to revise its strategy and re-evaluate its policies. For most of the second half of the 20th century, Americans were supporters of a global market based on free trade and capitalism.Because Americans believe that the more economic activities they generate, the more economic activities they generate, and that trade begets trade.According to this view, the more centers of economic activity the better, the situation of a single center is the worst.Only when there is opportunity and competition, the market will prosper; if there is no room for development, the market will lack vitality.At least, that's what the Americans say when they create open markets around the world and try to build open societies. However, what success brings to Americans is not satisfaction, but fear and anxiety.Even before the credit crisis, Americans were already increasingly ambiguous about free trade, increasingly insecure about America's global position, and increasingly hostile to China.For some, this fear and anxiety is a reaction to the excessive prevalence of free-market ideals.The free market concept advocates capital and ignores the value of labor. Its prevalence has brought about a high concentration of wealth in the hands of enterprises and elites.For others, the fear and anxiety is the result of the country's economic base shifting from manufacturing to commerce, services and creative industries, among others.Others’ fears and anxieties are simply a reaction to the rise of China and the symbiosis between China and the United States, because these people feel that this means the loss of American sovereignty. There is an inherent tension between the best interests of the market and the state.This contradiction has been mirrored throughout most of modern history.States often seek to increase their control over commerce for their own benefit.America is no exception.The United States has always been an active supporter of free trade and open markets in the 20th century. This is because American capital and enterprises dominate the world and can gain advantages in free markets. A world that is more open to American capital and American enterprises in the interests of the United States.This is why many people on the left believe that there is no difference between the military strength and economic strength of the United States. They both serve to strengthen the dominant position of the United States in the world. But it is the success of open markets that has weakened the United States, which now faces a new challenge: Can it adapt to a more developed world in which the United States is one of the key economic pillars?Does the United States view any long-term change in its relative position as negative and something that should be changed?Could Americans define power differently?Is it acceptable that in today's world, the United States can no longer use force to force other countries to submit militarily or economically?Can Americans accept the possibility of greater prosperity in the future at the expense of less sovereignty?