Nine percent of Americans think Japan is the world’s top economic power, and that raises an obvious question: Huh?
If we knew exactly who that current-events-challenged minority was, we could make a bundle sending them e-mails on how to redeem unclaimed fortunes in Nigerian banks. Thankfully, most Americans got it right in a Jan. 5-9 survey by the Pew Research Center for the People and the Press. It’s that China, not the U.S., is on top, reflecting a marked shift in attitudes after the global financial crisis.
Make that Asia in general. When John Calverley, global head of macroeconomic research at Standard Chartered Bank in New York, predicts annual world output will rise to $308 trillion by 2030 from $62 trillion today, Asia is a major reason why. Calverley expects China and India alone to account for 33 percent of gross domestic product, compared with 12 percent by the U.S. and 3 percent by Japan.
Here’s something both surprising and comforting: Fewer than one-quarter of the respondents view China as an adversary, and some 58 percent said it’s important to build stronger ties with China. Yet how realistic is that? Not very, in the short run.
China is America’s banker and it’s coming for dinner next week. President Barack Obama is rolling out the red carpet for his main financier, Chinese President Hu Jintao. The state visit, which begins Jan. 18, offers Obama a chance to ask China not to call its loans. China holds $907 billion of U.S Treasuries.
The financial relationship between the Group of Two is the long-term issue on which Obama and Hu will focus. A minefield of explosive short- to intermediate-term ones must be navigated before the U.S. and China come to grips with where they were 10 years ago and where they may be a decade from now.
Anyone who thinks all this will go smoothly is dreaming. Obvious flashpoints are currencies, trade, intellectual property rights, climate change, military spending, North Korea, scarce global resources and human rights. Markets will be whipsawed by any geopolitical hiccups.
The U.S. is only now realizing the extent to which China has made gains in all of these areas, often at the U.S.’s expense, over the last decade. Americans are also beginning to fathom a future in which they, like the Japanese, will be in something approaching a subordinate role.
That’s why many pundits are comparing Hu’s Washington visit to Deng Xiaoping’s in 1979. There’s a bit of hyperbole in this view, yet there’s no denying that with China using its $2.8 trillion of currency reserves to support Europe, the “developing nation” label no longer fits easily.
Yes, China is grappling with poverty and an immature financial system makes it hard for the central bank to control things. China is also keen on throwing its weight around without a commensurate increase in global responsibility. China’s corruption, coddling of North Korea and its support of rogue regimes in the name of resource procurement are cases in point.
The fact that Hu is getting a formal state dinner ― an honor he didn’t receive in 2006 ― speaks volumes. A February 2008 Pew poll taken before the collapse of Lehman Brothers Holdings Inc. found 41 percent of Americans considered the U.S. the top economic power. Now, 47 percent say it’s China.
Well, sort of. For all its problems, the U.S. economy is still about three times the size of China’s and dwarfs it in terms of per capita income. Also, maintaining China’s 10 percent annual growth rate without a major crisis is easier said than done. A setback or two could easily knock China off course. In 1989, remember, Americans were convinced the future was Japan’s.
Cash-rich, fast-growing China is coming to dinner knowing it’s seen as the dominant power of the future. That will be harder for many U.S. officials to accept than meets the eye.
In the long run, China’s rise ― and more generally, Asia’s ― is a good thing. Economics isn’t a zero-sum game, and a few billion Asians looking to get wealthier may raise all boats, as the old saying goes. Yet the road to $308 trillion world GDP will be a bumpy and, at times, contentious one.
Chinese officials don’t want to be seen bowing to U.S. demands. So, a big change in China’s currency policy isn’t in the cards. The path for Obama, meanwhile, is fraught with risks as an Asian power flexes its muscles at a time when the opposition sees him as wimpy.
Amid high unemployment and sliding living standards, Americans are seeking answers. For politicians, China is an obvious scapegoat. Blaming the world’s fastest-growing major economy comes with risks, though.
Hillary Clinton said it best in a 2009 comment contained in cables released by WikiLeaks.org. To then-Australian Prime Minister Kevin Rudd, the U.S. secretary of State said: “How do you deal toughly with your banker?’” Her boss is about to find out, and it won’t be an easy conversation. It may even lead to some diplomatic indigestion.
By William Pesek
William Pesek is a Bloomberg News columnist. The opinions expressed are his own. ― Ed.