Jewish World Review Dec. 14, 2005 / 13 Kislev, 5766

Most of U.S.' anxieties toward China are misplaced or exaggerated

By Robert Robb

http://www.JewishWorldReview.com | The United States is full of anxieties about the rise of China.

Some fear that China will somehow use the large amount of U.S. government debt it holds for malefic purposes.

Fears about China as a rapidly growing economic force are rampant in this country.

Secretary of Defense Donald Rumsfeld has publicly fretted about China's large military buildup given that, at least according to Rumsfeld, it faces no security threats.

During the 2000 campaign, then candidate Bush derided the strategic engagement policy of the Clinton administration. Instead, Bush asserted, his administration would treat China as what it is, a "strategic competitor."

That sort of language has been dropped by the administration, but it doesn't really seem to have an alternative strategy to guide U.S. interaction with China. During his recent visit to Asia, Bush made his customary freedom and democracy lecture about China, but from the safe shores of Japan. While actually in China, Bush had uncharacteristically little to say.

Most of these anxieties are misplaced or exaggerated.

China has a grossly underdeveloped financial system. It needs a safe place to park reserves and there isn't anything much more secure than U.S. government debt. This would be a strategic concern only if no one else was willing to loan the federal government the money. Persistent low interest rates indicate that isn't the case.

China certainly has a fast growing economy, having averaged about 9 percent annual growth in its Gross Domestic Product for the last two and a half decades. But it is still far from overtaking or even reaching parity with the U.S. economy.

Currently, China's GDP is less than one-seventh that of the United States. Its GDP per capita is barely over $1,000, compared to over $37,000 in the U.S.

Even if China continues its current pace of growth it would only have an economy about a quarter the size of the U.S.'s by 2025. China's ambition is to have per capita GDP in just the $3,000 range by mid-century.

To get even there, China has some fairly significant obstacles to overcome.

Right now, China's economic growth is largely export driven. To truly develop the domestic economy will require extensive liberalization and the establishment of a nonpolitical rule of law. Right now, China ranks very low on the Index of Economic Freedom published by the Heritage Foundation and the Wall Street Journal.

Because of its population control measures, China also has a developing demographic problem of an aging population that makes the U.S.'s look like a cakewalk.

More importantly, however, China should not be viewed as an economic competitor. Companies compete against each other. In a free global economy, countries provide markets for each other.

Much is made of the growing trade deficit with China. U.S. exports to China, however, have increased by 284 percent over the last decade.

Moreover, Chinese imports have made a meaningful contribution to keeping inflation under control in this country.

China is rapidly building up its military, increasing expenditures at an estimated 11 percent a year over the last decade. But even the Pentagon's highest estimate only has China's military spending at about a fifth that of the United States.

Contrary to Rumsfeld's fret, the United States fully understands the need to have a military capable not only of dealing with existing threats but strong enough to deter potential ones as well. By the Pentagon's own assessment, China does not yet have the military capability to protect its own extensive coastline, much less the shipping lanes on which its economy depends.

China has territorial disputes with its neighbors, but the only one that concerns the U.S. is Taiwan. Yet, over the long haul, the fact that Taiwan is the largest source of foreign investment in China is likely to serve as more of a deterrent to precipitous Chinese military action than the dwindling credibility of U.S. intervention.

None of this is to say that the United States should embrace China's rise. It is lead by an authoritarian regime from which we should keep our distance. But it is not, realistically appraised, a threat, economically or militarily.

In fact, Bush's uncharacteristic relative silence while in China is a sound diplomatic approach to U.S. relations with that country. As was something Bush did while there: He attended a church service. Bush didn't say much afterward, but it highlighted the suppression of religion in that still benighted country.

Sometimes the eloquence of a simple act says more, and is more effective, than the often futile posturing of diplomacy and military power.