The Chinese and American economies in the next ten years will be largely shaped by the degree to which they are integrated. No other publication thus far has demonstrated this trajectory as thoroughly and convincingly as the study presented in this volume. Fifteen eminent economists and business leaders based in the United States, the Chinese mainland, and Hong Kong have collaborated to analyze the current China-U.S. economic relationship and project its future. In view of the potentials and difficulties in strengthening China-U.S. economic ties, the writers are offering collective as well as individual proposals for the governments and business communities of the two countries to further their cooperation for mutual benefit. The final product is extraordinarily glittering and encouraging.
Indeed, there are ample reasons for optimism if one traces the history of China-U.S. economic engagement. When President Richard Nixon made his historic arrival in China forty-one years ago, the U.S.-China economic relationship was nonexistent. China’s economic policy and performance were of little or no consequence to U.S. domestic economy; nor did U.S. economic policy and performance have any effect on China’s. In the ensuing four decades China-U.S. bilateral economic relations have grown exponentially, which are increasingly consequential to both countries.
The study shows that the opening of the large American consumer market enabled the early success of China’s economic reform and opening policy. Steadily, China has become the “World’s Factory.” U.S. direct investment has not only brought in capital, but also technological knowhow and management skills. U.S. involvement also helps China to improve its own corporate governance, regulatory regimes, and financial markets. On the U.S. side, imports from China have been of adequate quantity and low cost. Both imports from China and the People’s Bank of China’s continuing net purchases of U.S. Treasury securities, with US$1.3 trillion by now, have helped the U.S. to keep its rate of inflation low for all these years. Given the current high U.S. public debt level, this is particularly significant. Business with China has made American multinational corporations very competitive globally. With the continued fast growth of the Chinese economy, Chinese imports from the United States have also been increasing rapidly. Therefore, the China-U.S. economic relationship is indeed “win-win” for both countries.
The account of the brilliant stories thus far in China-U.S. economic cooperation is impressive enough, but more striking and magnificent is the forecast of its future. The study emphasizes that the differences between the two economies are precisely where their complementarity arises. The authors, throughout this volume, provide new meanings to the cliché that China is the largest developing country whereas the United States is the largest developed country in the world, and that they therefore share many common interests and responsibilities. The two economies’ comparative advantages do not coincide. It is illustrated in the study that “the U.S. has a significant comparative advantage in industries that are relatively tangible capital-intensive, land-intensive (such as agriculture) and human-capital and R&D-capital-intensive (such as high-technology industries) whereas China has a significant comparative advantage in relatively labor-intensive industries.”
Two cases the study refers to are in point. First, because of the relative shortage of arable land for China’s population, the United States has already become China’s largest supplier of agricultural products and China is now the largest market for U.S. agricultural products. The middle class in China, expected to grow from the current approximately 200 million to approximately 630 million in ten years, with the urbanization drive, will demand much more agricultural products that the United States will be able to supply. Thus the potential for agricultural cooperation is enormous. Second, in 2012 there were just over 1 million Chinese tourists visiting America. A conservative estimate for 2022 is 3 million, but it is entirely possible that there would be 10 million Chinese tourists arriving in the United States annually, creating an incredible number of jobs and value-added GDP for Americans.
The study uses numerous words like “the largest” to display the opportunities for the China-U.S. economic engagement, which, if properly grasped, will make dramatic contributions to the world economy and global governance. For instance, China and the United States will remain the two “largest” economies of the world in the foreseeable future. The American economy is likely to recover sooner and grow more rapidly than most other developed economies, while China continues to be one of the fastest growing economies. Consequently, their respective performance and bilateral relations will make a great impact on the global economy. China and the U.S. are the two “largest” energy producing and consuming nations in the world as well as the two “largest” emitters of greenhouse gases. They also have the “largest” reserves of coal and shale gas. The two countries can cooperate to promote energy conservation and efficiency and explore and develop clean, new renewable and non-conventional forms of energy. Working together, they can help ensure energy security and sustainable development. They are the two “largest” trading nations of the world. By 2022, China will likely surpass Canada and Mexico to become the “largest” importing nation of U.S. goods and services. The U.S. and China will be each other’s “largest” trading partner. The Chinese retail business will be one of the “largest” in the world, with a size in terms of total value on a par with the United States. As a result, the rapidly rising demand of the Chinese middle class will provide growth not only for China, but also for the U.S. and other countries. China’s marketplace, together with the U.S. marketplace, will be two of the “largest” marketplaces in the world. Last but not least, the U.S. has been granted the “largest” number of patents among all countries every year, and China is determined to drive its economic growth also by innovations. The scientific, technological, and educational exchanges between the two countries are booming.
All these “largests” depict a rather bright picture for the China-U.S. economic relationship, which in ten years may turn out to be the world’s most expansive economic partnership. Realizing the existing and predictable prospective difficulties lying ahead for them, however, the authors offer sensible and practical suggestions to further the bilateral cooperation. China should take more seriously U.S. concerns about intellectual property rights protection, cyber security, the role of Chinese state owned enterprises, market access, exchange rate policy, and so on. The United States, on its part, should make adjustments to its restrictions on high-tech exports and reduce arbitrary and protectionist administrative actions in both trade and investment.
Furthermore, the study warns that if non-cooperation, aggressive competition, or even conflict occurs between the two countries, bilateral business will decline or stop. The world economic order will be disrupted and the risks of climate change will rise, making a disastrous impact on the global economy and governance.
This sober warning brings us to politics, which can never be separated from economics. We should not expect economic analysts to go very far from their own fields, and this study is already sophisticated and comprehensive enough. However, for those who are looking forward to the deepening of China-U.S. economic engagement, the balance sheet of economics should be further balanced by a political and strategic point of view.
China-U.S. economic relations provide each country with tremendous incentives to find ways to continue to cooperate and to avoid, or at least reduce, strategic conflict. Encouragingly, both the new leadership of China and the second Obama administration have expressed strong hopes for developing a “new model of international relations” that will refrain from entering into an old type of rivalry between a rising power and a predominant power, and promote mutual benefit instead. Obstacles do exist, however, to achieving this declared strategic goal.
However, even in the economic realm, the two sides still harbor substantial divergent interests and contrasting visions of the future global order they hope to see. These divergent interests and contrasting visions are not adequately discussed in this volume. While the Chinese hope to encourage domestic transformation in the trade regime and investment regulations in the United States, the Americans are trying to build up sufficient power and influence to transform the Asia-Pacific region in ways it sees as useful – the Trans-Pacific Partnership (TPP), for example – for reestablishing its centrality and dominance. These few years have witnessed less Chinese enthusiasm to attract FDI into the country. Some Americans suspect that Chinese firms are often attempting to invest in sectors of the American economy that the PRC would not permit foreigners to invest in within China. They charge that Chinese state-owned enterprises, supported by the government, are using cyber capabilities to “steal” U.S. technological innovations.
In addition, it is only natural that not everybody in China and America understands or accepts the truth of the increasing economic interdependency between the two nations. When people look beyond the economic dimension of international relations, some may point to security risks and threats, and others may be concerned about sovereignty and prestige of their own nation. Many in China believe that Washington is carrying out a “containment” policy, manifested by taking advantage of China’s territorial disputes with some neighboring countries, selling weapons to Taiwan, and supporting separatist tendencies in Xinjiang and Tibet. In contrast, a sizable part of American strategists and analysts strongly suspect that Beijing’s plans for military modernization and unwillingness to fully cooperate with Washington over issues like the denuclearization of North Korea and Iran reflect a strategic design to weaken the U.S. position in global affairs.
Security risks are by no means confined to the actual and possible China-U.S. strategic competition. In the Greater Middle East, terrorism and turbulence continue to linger. The Israeli-Palestinian conflict sees no ending. In Europe, the debt crisis threats to disrupt the process of regional integration and sows seeds of international discord.
A few decades ago, these sorts of mutual distrust, geopolitical shifts, and tectonic tensions not only would have resulted in large-scale tragic events but might well have provoked war. But today’s world is bound by shared interests among nation states and widely accepted international rules. Economic benefits and social welfare are at least as important as military forces in driving foreign policies and shaping the international order.
To be sure, traditional security concerns and geopolitics are still relevant to the overall China-U.S. relationship. But as this economic study reveals, commercial and societal interests have served as ballast on the ship of China-U.S. interaction, and will hopefully remain so in the next ten years. Deepening trade relations give each side a stake in the other’s success. With more than 1 trillion invested in U.S. Treasury securities, China has a huge stake in a more robust U.S. recovery. The prospect of a rapidly growing consumer sector and expanding middle class in China will create enormous opportunities for American agriculture and industry. A strategic and military confrontation between the two nations would shatter all these expectations. Meanwhile, the deepening of mutual strategic trust will hopefully help remove the pitfalls in the bilateral economic ties, as noted in this study.
It is imperative, therefore, for more and more people in China and the United States, in particular their political elites, to comprehend the economic logic in this volume and work together to dispel the shadow of China-U.S. adversary. The two nations are both at a pivotal stage for setting a new course for the future, and they should consolidate a cooperative partnership that benefits not only themselves but indeed the whole world.
Wang Jisi is Dean of the School of International Studies at Peking University.