OK. Uncle! I Guess China Really Must Be #1!

By James Fallows

I mentioned here and here my bemusement at studies showing that 44% of Americans and 55% of Australians think that China, with 150 million people living on around $1 per day, is the world's "leading economic power."

In response to voluminous reader email, I offer the other side. And, indeed, this picture sums up the story: if a 50-year-old Chinese guy can tow an airplane with his eyelids, what hope is there for anyplace else? (Reuters photo, details here, thanks to my colleague I.K.)

StrongMan.jpg

Now, the readers speak:

The Lowy Institute Poll does not define the term "economic power," but perhaps Australian participants used this definition of "power": the ability to impose your will on others.

If that is the case, the poll results are not baffling at all. I would make an analogy with Microsoft and Apple. While you seem to rely on GDP and per capita income as evidence of economic power, I would argue this is similar to claiming that Microsoft is more powerful than Apple because it has significantly greater assets or earnings than Apple.

Ask yourself this -- which company has a greater influence on other media such as the music or publishing industries? Apple isn't even the biggest smartphone seller (RIM's Blackberries still outsell iPhones), but which company has more of an influence on the phone industry? What other company would produce devices that browse the web but intentionally do not support Flash? It is other companies that bend over backwards to comply with Apple, and not the other way around. In comparison, the number of failed attempts by Microsoft to extend its influence out of the narrow confines of PC operating systems and office software are legion.

The poor health care available to most Chinese or the rising cost of housing to China's middle-class are beside the point. China has power because its markets are growing strongly while others have collapsed, and also because its government has an enormous ability to affect how foreign companies are allowed to compete in those markets. For example, while many other countries used the same sort of protectionism as the Chinese during the recent credit crisis (such as "Buy American" laws), China also has the advantage that it is only partially governed by Rule of Law -- its government can ensure that even nominally non-protectionist laws such as its Labour Law are selectively enforced against foreign companies. As they pursue Chinese markets,foreign companies (and governments) are more and more forced to please the Chinese, and not the other way around. (The hesitation now of European leaders to meet the Dalai Lamai or the U.S. hesitation to declare China a currency "manipulator" are just two small examples.)

Far from thinking that "44% of Americans are crazy", I worry instead about the predicament that Obama faces when many Americans refuse to see China's rise in power and wonder why he doesn't get "tougher" on the Chinese. When even Paul Krugman couldn't envision ways the Chinese would retaliate against unilateral American measures on the yuan, Obama is in dangerous straits.

Another reader says:

For the past two years, Australia's three largest trading partners were:
                 Exports            Imports
              2008      2009        2008      2009
China:  32,337   42,416      35,258   35,781
Japan:  50,765  38,253       20,232   16,689
US:      12,127     9,594       26,696    22,278
(Australian exports and imports to the named countries, in millions of Australian dollars.)

Given the relative proximity of China, the size of their trade with Australia, the fact that they have only recently become Australia's largest trading partner, and the factors you have mentioned, it seems natural that Australians who aren't paying close attention might think China has become the world's largest economy. It is for them currently the world's most important economy (besides their own). Of course, none of this takes away from your larger point that China still has many challenges and isn't the unstoppable behemoth some think it is. (Yes, I remember the panic in the 80s about how Japan was an unstoppable behemoth too.)

And another adds:

While I take your general point that the American public - all publics, really - are poorly informed about many things, I think you're reading more into the actual question [about "leading economic power"] posed by Pew than is there.... The question posed was not "which country has the highest gross domestic product." I think those are different questions.

I think I could build a strong case that "China" is indeed the "world's leading economic power." Due to sustained rate-of-growth and the size of their potential market, it is a country in which corporations are climbing all over themselves to gain an early foothold. They do this even if it proves necessary to compromise dearly held principles (Google, for a time), risk prison for their executives (Rio Tinto), or have their intellectual property pilfered (Microsoft, among many others). Its "economic power" was particularly obvious in the depths of the economic crisis, when China's major competitors for the title of "leading economic power" were so strapped for liquidity, that there was much bowing and scraping by finance ministers from other "powers." This included, for example, the U.S. -- "keep buying our Treasury bonds, please." You may also have noticed that this past week, what finally arrested the decline of the European stock markets associated with the sovereign debt trouble in Greece and Spain was that China assured the world that it would keep supporting European debtors. In short, China alone had (and still has) piles of what everyone else needed (needs) at a time when the world economy was at a crucial turning point. We're still beholden to them, as is Europe. This is likely to remain true for many years.

China also shows its economic power by getting away with the sorts of currency manipulation that other major economic powers do not, and yet China receives only polite and tentative pressure to stop "beggaring its neighbors."

Finally, there is the word "leading" that appears in Pew's question -- which, to me at least, focuses on "what's next" -- ("leading" as opposed to "following"). On that front, China has few competitors -- certainly not the U.S., Europe, or Japan. We all know (or think we know) that China is up next, that their dominance is imminent, and that the "American Century" was the last one.

All duly noted. I exclude myself from the "we" who know that China's "dominance is imminent." That depends on a lot of things continuing to go just right for China -- and, on the other side, on continued failure to adapt in the U.S., Europe, and elsewhere. The nice thing is, we'll see.

This article available online at:

http://www.theatlantic.com/international/archive/2010/06/ok-uncle-i-guess-china-really-must-be-1/57454/