Most Chinese people believe the United States of America is still the strongest country in the world but because it is sliding from its peak they no longer envy it as much or believe it to be the best. It was so highly regarded in the past that China adapted the US model to build its market economy system. The Chinese financial system more or less followed the US’s, so our central banking was reformed into a system of 9 regional branches along the lines of the 12 federal districts’ system. We also followed the US in separating commercial banking and investment banking and established many similar non-bank financial institutions that now operate in US markets. However, we were wary of not exactly copying the US model because of our different stage of development, culture and history.
The US still has the best universities and technologies compared with most countries but it has not made full use of its assets in the best interests of humanity or its own people. It wastes a lot of resources pursuing what it believes to be right and forces other countries to follow. By using all available means, including military force, to promote American ideology, it is breaking the international order it built with most countries after World War II. The war in Iraq and other theaters not only weakened the US, especially fiscally, but also ruined its image as a rational, reasonable, peace loving and just country. As a result, the Super Power lost its legitimacy as the leader of the international system.
The US economy’s sustainability also attracts Chinese people’s attention. Rapid increases in deficits worry other countries and the response of the international financial market to the recent downgrade by S&P of US sovereign credit is a manifestation of this kind of concern. The downgrade itself and the debt figure are not core problems. What worries the world is that the two parties in US Congress used the debt ceiling issue to fight for their own political interests. They did not care about creditors’ feelings or interests or the responsibility the US should carry for its debts. Although the debt ceiling was raised, the Democrats and Republicans made no real compromises in consolidating US fiscal foundations. Without cutting enough spending and raising taxes in the future, how could the US reduce the debt ratio? The nation’s subprime crisis and economic downturn had already proved the unsustainability of further debt and that the economy could not always rely on it. However the political elites believed the US could always print ‘green backs’ to maintain the status quo, betting on there being no alternative to the US dollar in the international monetary system. However, if the US government and Congress do not take real and effective measures to restore credit worthiness, the nation will sooner or later loose its hegemony in the international monetary system. The pity is that so far we have only seen words from the US government where action is needed.
There is no doubt the US has the ability to restore its international image and economic strength. It has all the resources it needs and no country in the world is challenging its leading position. The problem is the misperception that the political elites have of their country and its place in the world. If these powerbrokers were willing to give up some short-term interests for the long-term stability and prosperity of the US and the world, we would see a more reasonable international order. And on the basis of fulfilling its corresponding responsibilities, the US would still enjoy its leading role.
Xu Mingqi is professor of international economics and Deputy Director of Institute of World Economy at Shanghai Academy of Social Sciences.