This is a topic that I’ve wanted to write about for a while and I just haven’t had time to. I’m going to try and keep this short and sweet, so I won’t go into a lot of in-depth detail…do a little homework or ask if you don’t understand something. So here we go. I’ve heard a lot of people talk about how the dollar is losing value and China is going to crush it and take over as the world’s largest power. Also, that China holds our future in their hands, and if they were to ask for their money, we’d be in trouble. Also, that China is going behind America’s back to try and negotiate oil contracts with middle eastern countries (partially true, but unsuccessful). The problem with all of this is none of it realistic. China is about as big of a threat to us as Uzebeki-beki-beki-beki-stan-stan (So long Herman Cain).
One of the first things you learn if you take an Economics class is about sustainable and unsustainable growth. China has been growing at an outrageous pace over the past few years. The growth is completely unsustainable and China will have a huge collapse, just like the one we’re going through. The question is when it will happen. If you really look at the Chinese economy, it’s already beginning to slow down. The collapse is coming soon. So what’s keeping China’s economy going strong? Ironically, it’s the US dollar.
The first thing you have to understand is that China doesn’t buy treasury bonds to help the United States. They do it, over fear of the dollar losing value. China depends heavily on their exports, and a weak US dollar lowers the amount of goods exported to the US from China. Fewer imports for the US, means over-production for China. So what China will do is purchase treasury bonds so the US can keep the dollar at least somewhat steady. This in turn, means that they can export more of their goods, making more capital.
The problem China has, and the main reason they’ll never be a serious threat to the US, is that the majority of their “growth” is their investments in foreign banks and treasury bonds. This isn’t money that they can spend domestically. So while their GDP might be growing at 9% a year, their living conditions are still horrid. They invest very very little in infrastructure. Their wages are so low you could almost argue that it’s slave labor. China also is the most polluted and unhealthy country in the world. Nearly everyone in China lives in poverty, except for the very few privileged, further proving that China has the largest rich-poor divide in not just Asia, but the entire world.
So what happens if China stops buying US treasury bonds? Someone else does. The United States economy makes up about ¼ of the entire world economy; more than China, Japan, and every other Asian country combined. There is an absolute certainty that the world will invest in the United States. Now on the other hand, the only way China would stop buy bonds, would be if we stopped importing Chinese goods. What would happen then? As I said earlier, China is extremely dependent on exports to the United States. If they stopped, you’d begin to see over-production in China. That would lead to inflation and cause the Chinese economic bubble they’re riding right now to pop out from under them and they would fall miserably down, deeper than we have been the past few years.
So to wrap it up, China is hugely dependent on the United States and is nowhere near ready to overtake her as the largest super-power in the world. The United States, on the other hand, is less dependent on China, and will be even less now that new trade agreements with countries like South Korea, Panama, and Columbia. So next time you hear someone shouting about how America is owned by China, and that the Chinese are going to destroy us, tell them to study the facts and stop watching Faux News.