Dragon Egg Omelette

“China is buying America, exerting its economic might when it can’t exert military strength” is a common refrain. Fears of Chinese domination fuels populist rhetoric. Trade deficits with China is disconcerting to American voters and manufacturers. The end of America is nigh. Simple and polarized visions of a Skyrim future where dragons rule the air and land make good political slogans, and offers easy explanations for why the American government should get its ass in gear and do something. It isn’t that simple.

China might be the 3rd on the list of countries with purchasing power parity,1 however, China is frugal, and a smart investor. China doesn’t want to buy Europe, at least not on the level that the EU wants. Chinese direct investments to EU was approximately $6 billion in 2010, but Chinese officials announced last weekend that Europe needs to be responsible for its own recovery.2 This doesn’t keep EU officials from asking for money though. EU wants to be the kind of guaranteed investment the US is.

$1.132 trillion is the amount of Chinese US Treasury holdings. China is the largest foreign owner of US federal debt, individual American investors are still the largest holder of US debt. But this is no reason to enroll your children in Chinese language class. One could even argue that there are a number of reasons to relax a bit and enjoy the complexities of the world. This is why I don’t fear a future of Chinese dominance, or a day dragons burn the Midwest’s crop fields.

Economic

Chinese economic growth has been in the double digits for a couple of decades, but that kind of growth is going to happen when you start from small economic base. However, the growth may plateau because of excessive infrastructure construction which may result in decay or too much supply for reducing demand. It’s financial system and banks are state-run, which allows almost zero interest rates… this results in bad loans. Along with excessive infrastructure, it also has excessive professionals. It lowers it education standards and pushes out so many “engineers” and “scientists” that it is unable to employ all of them. The professionals who do get jobs primarily end up working for the state, and the Chinese state does not encourage innovation the way a capitalist education and market industry do. Couple all of this with corruption (due to the state-run banking and financial system… and the communist culture of kleptocracy) and you have an economy that may not grow in the long run the way it has in the short period called history. One doesn’t even have to think about the rape the Chinese are committing to their environment and the degradation of its natural resources. China has a huge economy, but it may not be able to sustain the growth necessary to maintain its stature, or overcome the US economy.3

Military

China has an aircraft carrier, a drone, and stealth fighter. Politically, China desires the US out of what it sees as its territorial disputes. It may be engaging in cyberwarfare, building a big missile arsenal, and pursuing a consolidated domestic front that effectively wields a coherent foreign policy. All of this may indicate a growing global military capability, but the these factors may not be as they seem. The three weapons systems mentioned (aircraft carrier, drone, and stealth fighter) are the peak of Chinese military technology. China still lacks the ability to innovate in a manner that meets US military technology.4 Put this with the demands of being able to fund these innovations and you have a military that is definitely the big boy on the block but you don’t have a superpower that can project its military around the global. The logistical nightmare of supplying these forces is not to be discounted either, just ask US military planners as they struggle with supporting forces in Afghanistan. If China was truly a military power, why would it be holding back in settling its problems concerning Mongolia, Taiwan, Tibet, and India. China is aggressive, and it is attempting to level the (battle)field with the US. It has, arguably, used sheer will to keep North Korea in check.5 However, China has not shown itself to be the type of nation that can exert its will through the singular use of military power in the region, let alone on a global stage.

China has seen, and may yet see, substantial economic growth. China will continue to manufacture goods for Wal-Mart. China will continue to have a lot of money to invest. China will continue to invest in America because it has nowhere else to go with its money. China knows a good investment when it sees it. The question remains though, for how long will China be flush with cash. If the Chinese economy doesn’t continue at its breakneck speed, its economic and infrastructure will be hurt. Wal-Mart and American consumers may not have the luxury of buying Chinese goods in the future if China isn’t able to continue its growth. Militarily, China wants to be powerful, and in certain ways it is, however, China is not the threat as perceived in American living rooms. China isn’t ready to exert itself, and maintains a belief that nations should be allowed to handle its internal issues without foreign intervention. This belief in keeping others out of its business projects into its foreign policy. China isn’t ready involve itself in foreign political and military situations. I fear no fire-breathing dragon… yet.

1. CIA China fact book.

2. Keith B. Richburg, “China casts a wary eye on Europe,” The Washington Post, March 1, 2012, p. A16.

3. Kiplinger, “Seven Flaws in China’s Growth Model.”

4. This is the same problem the Soviets had during the Cold War. The Soviets had the numbers but they did not have the technology. American innovation, such as the Apache helicopter and M1 tank, rendered the Soviet numbers manageable.

5. Kyle Brady, “Over-Estimating China’s Military Threat,” policymic.com.