China, Superpowers, and Inequality

28Jul08

Here’s John Pomfret discussing why China won’t be a super power anytime soon:

One important nuance we keep forgetting is the sheer size of China’s population: about 1.3 billion, more than four times that of the United States. China should have a big economy. But on a per capita basis, the country isn’t a dragon; it’s a medium-size lizard, sitting in 109th place on the International Monetary Fund’s World Economic Outlook Database, squarely between Swaziland and Morocco. China’s economy is large, but its average living standard is low, and it will stay that way for a very long time, even assuming that the economy continues to grow at impressive rates.

The big number wheeled out to prove that China is eating our economic lunch is the U.S. trade deficit with China, which last year hit $256 billion. But again, where’s the missing nuance? Nearly 60 percent of China’s total exports are churned out by companies not owned by Chinese (including plenty of U.S. ones). When it comes to high-tech exports such as computers and electronic goods, 89 percent of China’s exports come from non-Chinese-owned companies. China is part of the global system, but it’s still the low-cost assembly and manufacturing part — and foreign, not Chinese, firms are reaping the lion’s share of the profits.

This is a pretty solid editorial and I think he’s absolutely right about the limitations of China’s potential to become a super power. Certainly it’s not too worrying that China might some day have more money then use since the have 4 times as many people. More importantly as he points out it’s misleading to suggest that U.S. companies are being slaughtered by Chinese companies just because their is a large trade gap. Western companies own many the companies that benefit from the trading gap.

What’s missing from Promfet’s analysis is the realization that there isn’t one China. Every country has an elite, a middle class, and lower class. How these classes behave has a huge impact on the power a country can expect to project.

Take the GDP per capita numbers. Sure you can hire someone for a dollar or two a day in China to work in a factory. Does that make China weaker exactly? Think about it this way, if America dissolved the minimum wage and McDonalds could hire people people for a dollar an hour would Wall Street suffer? If Wall Street didn’t suffer, would the America’s ability to wage war, or in other ways project power decrease?

The China that threatens us is the richest 100 million or so people of China. The fact that the Chinese upper class can hire half a billion people for very low wages is in fact why China’s strong. China’s poorest people might be dragging down the GDP numbers, but they’re the strength of China.

Imagine a hundred years. A German or French man might have looked to America and said yes it’s bigger then our country and yes their elite are very rich, but many Americans are just poor immigrants or African Americans toiling in southern farms. But those same workers that might have made America poor on paper, built America into a superpower.

As I said I don’t think China can truly expect to become a superpower. They’ve got too many problems, and I don’t think their leadership is truly capable of making the hard choices coming down the road.

But we shouldn’t mislead ourselves by imagining an average Chinese person and saying, “hey, I’ve got more money then that.” That average Chinese person is a statistician’s creation, created by averaging out the richer Chinese and the legions of poorer Chinese they employ.

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Tags: China, China Economy, China Superpower, Globalizaton