What is the trouble with China? It depends on where you are looking from. As economist Paul Krugman noted in January, the visit of China’s president Hu Jintao to the US triggered a rash of articles trying to make sense of “growing Chinese economic might.” The general drift and tone of the literature in the US is that China’s rapid development is 1) a threat to the US, including to American workers, 2) so rapid that it can not be sustained at its current pace, and 3) a threat to the global environment. A review of recent literature strongly suggests that how our government deals with China and its new status on the world stage remains uncertain and of great interest to American workers.



For instance, on point 1, it has been argued that China’s “manipulation” and “undervaluing” of its currency (the renminbi) takes jobs from American workers. According to the Economic Policy Institute (EPI), if China allowed its currency to rise to its “real” or “natural level” the cost of Chinese exports to the US would increase enough to create over 2 million jobs in the US and reduce our unemployment rate by a full percentage point. Krugman supports this argument contending that China’s policy “seriously damages the rest of the world” because China “by engineering an unwarranted trade surplus, is in effect imposing an anti-stimulus on these [the world’s large] economies, which they can’t offset.”



The viewpoint that cheap Chinese exports pose a threat is not shared by everyone in the corporate community. On point 2 above, we might consider Keith Bradsher’s analysis in the New York Times of May 31, 2011. Bradsher’s concern about whether China can “maintain its double digit growth of the past three decades” appears to reflect the intense interest that western economists show with China’s economic fortunes. He alleges that “the world closely monitors the temperature of China’s economy, so crucial has it become to the health of global business and finance.” For example, the nation’s auto industry, which over the past two years surpassed the US, is thought to be growing more slowly in recent months. Why does such slowing growth in China worry international business? Because China’s “production and demand have helped underpin high world prices for oil, steel and other commodities,” and “the specter of slackening Chinese demand has helped send world prices for industrial commodities like copper falling by 10 percent or more.”



How are we to make sense of all this? A recent opinion piece in the commercial press on June 7 by Professor Steven Conn of Ohio State helps. His argument should be no secret to economists. But we rarely see it stated so bluntly: China’s growth is fueled by government spending. From high speed rail and other infrastructure to renewable energy and scientific research, “public spending on a huge scale” is China’s secret. Conn goes so far as to suggest that US politicians who rail against the Chinese “threat” are not being up-front with their constituents, the American people. The real threat, he suggests, is to “conservatives’ free market orthodoxy,” which has dominated our national discourse. “In the last 30 years, our economic policy has shifted away from public investment and toward enriching big corporations and wealthy individuals through tax breaks and giveaways.”



If conservative politicians and corporate minded economists will not tell the truth, we should tell the truth. China presents a “threat” not because of its size and its growing influence in the global economy, but because it does not play by the rules established by international capitalism. Given the history of European and US imperialism regarding China, this should come as no surprise to the moguls of world banking and finance. The Chinese government is not restricted by the dictates or the mentality of those who worship the private sector and the “free market.”



We should also point out that the Chinese leadership has not been aloof or silent when it comes to proposing solutions to the world wide recession. Chinese premier Wen Jibao in a recent piece in the Financial Times (“How China Plans to Reinforce the Global Recovery”) explains his country’s recent policies in some detail. He argues that “the thrust of China’s response to the crisis is to expand domestic demand and stimulate the real economy, strengthen the basis for long term development and make growth domestically driven.” He concludes by saying that “we should respect different models of development, increase help to least developed countries to enhance their capacity for self development, and promote strong, sustainable and balanced growth of the global economy.” The official Chinese point of view rarely makes its way onto the pages of any news outlets in the US; we should give it consideration.



The response of American workers, therefore, would seem to be best directed at our own government and to using workers’ considerable strength, real and potential, to bring about an early and sizable increase in the level of its public response to our needs. The gutting of budgets for everything “public” except the military – and even the public nature of the military is now in question given the trend toward turning tasks over to private contractors or mercenaries – is moving us exactly the wrong direction. That is what we need to turn around. Would that be too much like taking a page from the Chinese? Maybe, but we also have that in our own history. As Conn points out in his article, “the Chinese are doing what Americans used to do: making large scale public investments ….” Will such a course lead to socialism (GULP?!) Maybe; that will be decided down the road. Conn actually proposes that the opposite could be true, that such investments could stimulate the private market. So we will fight over the gains that public investment brings; that is nothing new. The point is that when investment decisions are left solely in the hands of the private sector, the majority suffers.



Finally, on point 3 above, I recommend an article in the June issue of National Geographic. This interesting piece is, perhaps, more informative for lay readers such as this writer than much of the arcane economic analysis, as important as that is. Author Bill McKibben suggests that China presents a contradictory, fascinating picture. He argues that China is pursuing “green technology” and renewable power sources such as solar energy on a scale that no other nation is matching. On the other hand, China’s rapid growth depends, and will continue to depend, primarily on coal. He says, “China’s green effort is being overwhelmed by the sheer scale of the coal-fueled growth.” But here again, the response of the US to China’s growing influence is what should concern us.



The author writes that changing the game as far as carbon emissions go will require attention and “change beyond China – most important some kind of international agreement that transforms the economics of carbon.” In other words, will the US auto industry heed the Obama administration’s urging to significantly increase fuel mileage on new cars by 2020?



What is the "trouble" with China? The trouble is that the existence of a government in control of the most populous nation on earth that refuses to bend to the desires of international finance challenges Wall Street and the US foreign policy establishment to fundamentally alter its world view. Solving the “problem” of China will require negotiating with the Chinese eyeball to eyeball on a basis of equality and mutual respect. Getting them to do that is our challenge.

Photo by Jakob Montrasio/cc by 2.0/Flickr