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| Not yet the G2, but maybe the G1? |
| John Foley & Edward Hadas / Nov 14, 2009, 00:56 IST |
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China/US: President Barack Obama will have a friendly meeting with his Chinese counterpart Hu Jintao next week. They two countries depend on each other too much for anything else. In a few years Hu or his successor may be able to tell the American leader what to do. But not yet.
The Chinese advantage over US doesn’t come from its relatively good recession. While the annual GDP growth rate in China never fell below 6%, the US suffered a 4% decline in GDP. That difference has something to do with policy – China’s $585bn stimulus package has been effective – but more with the momentum that comes from a high investment rate in a still poor country.
China’s main advantage is its future. It is a rising economic power, while the US can best be described as mature. The Middle Kingdom will be the world’s largest economy long before all of its 1.1bn people acquire the bourgeois comforts that the 300m Americans take for granted. That prospect may be a decade or two away, but Chinese economic desires are already almost as important as those of the Americans.
In the present, China is a creditor while the US is a debtor – the world’s largest on both sides. The US depends on China big time – the vast majority of China’s $2.3 trillion of foreign currency earnings are held in dollars, and the US has outsourced production of many basic consumer goods to foreign, often Chinese, producers.
But China can’t really do much with this mercantilist advantage, not without hurting itself. If it tries to sell a big share of its dollars, the resulting rout in the greenback would undercut the value of its portfolio. If China tries to squeeze the US by not lending more, it risks destroying exports and jobs at home.
The governments of Obama and Hu are both jockeying for advantage – the Chinese by complaining about US profligacy and vaguely threatening the dollar, the US by selective tariffs and muted please for the Chine to revalue the renminbi. But for this meeting, the relations look like a standoff.
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