In the November issue of The Atlantic, Yoni Appelbaum has written an interesting reflection that made me think about the current status of U.S. economy: “Around the globe, those who dislike American ideas about democracy now outnumber those who favor them. […] China whispers seductively to rulers of developing nations that they, too, can keep a tight grip on power while enjoying the spoils of economic growth.” I could not help but wonder whether the “tight grip on power” that China keeps while expands its economic power all over the world, will turn out to be an actual source of strength in the future.
Everybody knows that China is one of the leading holders of U.S.A. securities with 1,200.5 billions of dollars, as listed by the US Treasury. Currently, the U.S.A. general government gross debt is 108.1 % of the GDP, while the China’s one is only 47.6 %. Additionally, according to Bloomberg, in the United States also the household debt is rapidly raising, and what scares most is that it is raising for necessities. Indeed, the US household debt ($12.7 trillion) has reached more than the size of China’s economy. Yet, the debt’s size and the fact that China holds a big part of it, would not be big problems if the US economy’s growth kept raising greatly: perhaps this is the most important element that we have to take in consideration when we refer to the future of USA’s economy versus the China’s one.
Even though the aggregate data released by the World Bank spread positivity last week, showing that in the 2016 the US’ GDP set to 18.57 trillion USD while the China’s GDP reached only 11.2 trillion USD, the IMF data collected till now offer a different insight into USA’s economic growth. Indeed, the annual change in GDP percentage in the US is only 2.2, compared to the 6.8 percent reached by China. Especially the IMF data referring to the exports of goods report that in the second quarter of 2017 China has reached the value of $566.82 billion, more than the $382.5 billion reached by the USA. What about the trade deficit? According to the United States Census Bureau, in August the United States ran a negative balance of 239,121.25 million dollars between exports and imports. Surely, this complex economic situation reveals that China is growing undoubtedly at a very fast pace. But can free market thrive in a country that exercises a “tight grip” on its economy? By looking at the current data, the answer seems to be affirmative: but what will happen in a long-term? We know that the most valuable sources that a country needs to improve its economy are people, capital and ideas, and how can China foster ideas and innovation through its rules? Last week The New York Times has published an interesting story that portrays very well what means being an entrepreneur in China.
We are used to talking about free market and trade, and the US along with other occidental economy – the German in the first place – have been doing business with China for years pretending that its rules and its way of looking at the market were the same we are used to. Yet, President Xi Jinping “has pushed for strengthening state-owned enterprises and has called on businesspeople to maintain loyalty to the party”, reshaping board seats and making restrictions on abroad investments.
On one hand USA is letting China enter in its free market and make deals with its companies, allowing this country to increase its exports in USA and so strengthen its economy growth. On the other hand, China is not playing by the rules. Indeed, the occidental view on free market is highly different from the China’s one. The problem it is not the one which Trump often refers to, that is China stealing jobs to US workers. In fact, the problem is subtler and concerns more the fact that, in order to make fair deals, both the parties involved should play by the same rules. Yet, as revealed by Bloomberg, in order to do businesses in China foreign entrepreneurs need joint ventures to help their companies to “navigate the complex Chinese business environment”; an environment made of strict rulers and a strong government control that still struggles to let its entrepreneurs make free choices.
Therefore, in this way China can control and reduce any form of competition, the main component of free market. Perhaps, more than focusing on China stealing jobs from US workers, the U.S. government should start thinking how much China is taking from its companies by not playing by the rules set by the WTO.
The trade relationship that U.S. and other occidental countries started with China –assuming that their economies would have benefited from it- might eventually endanger our market and especially our idea of free market.