I just finished reading Walter Russell Mead’s cleverly titled opinion piece in the LA Times: The great fall of China. I gotta say, he paints an interesting picture of Americans, never mind the “China” he is writing about.

The article points to a recent study by the World Bank that concluded that their previous figures relating to China’s booming economy were a tad off – by, oh, 40%!

So, essentially, the last two years of reporting about China being an economic powerhouse setting to overtake the US as the world’s largest economy by 2012 is all bunk.

China, it turns out, isn’t a $10-trillion economy on the brink of catching up with the United States. It is a $6-trillion economy, less than half our size. For the foreseeable future, China will have far less money to spend on its military and will face much deeper social and economic problems at home than experts previously believed.

What happened to $4 trillion in Chinese gross domestic product?

Mead goes on to explain that it was a problem of statistics, which a friend of mine, then taking a stats class, explained to me as thus: “Statistics show that 33% of people don’t understand statistics – so, it’s a good thing half of us know what’s going on.

The political consequences will be felt far and wide. To begin with, the U.S. will remain the world’s largest economy well into the future. Given that fact, fears that China will challenge the U.S. for global political leadership seem overblown. Under the old figures, China was predicted to pass the United States as the world’s largest economy in 2012. That isn’t going to happen.

Also, the difference in U.S. and Chinese living standards is much larger than previously thought. Average income per Chinese is less than one-tenth the U.S. level. With its people this poor, China will have a hard time raising enough revenue for the vast military buildup needed to challenge the United States.

The balance of power in Asia looks more secure. Japan’s economy was not affected by the World Bank revisions. China’s economy has shrunk by 40% compared with Japan too. And although India’s economy was downgraded by 40%, the United States, Japan and India will be more than capable of balancing China’s military power in Asia for a very long time to come.

Where does this fear of China’s military come from? Aside from some hotly disputed claims to vast stretches of craptastic land in the West and a few islands in the south, China’s pretty non-imperialistic when it comes to using its military might for anything other than protecting its sovereignty. And as any swirly-eyed school kid in China will tell you, that’s been pretty consistent throughout Chinese history.

America, on the other hand, well… there’s a reason their military budget is so high, and it ain’t border patrol.

All that said, and perhaps its the conspiracy theorist in me, but does anyone else feel like this World Bank error is extremely coincidentally timed? Downplaying the view that China is the “next big thing” certainly can’t hurt the rather limpish US dollar, and if Mead’s opinions are of any weight as being “American”, it puts the US way back out ahead – where they “belong”.

For Americans, the new numbers from the World Bank bring good news and bad. On the plus side, U.S. leadership in the global system seems more secure and more likely to endure through the next generation. On the other hand, the world we are called on to lead is poorer and more troubled than we anticipated.

Thank you Captain America. Please lead on.

Discussion

7
  1. In terms of explaining those ornery statistics, the article is a lot more thoughtful than you’re letting on, but the sections you’re excerpting probably reflect the “China threat” discussion within America’s bipartisan Council on Foreign Relations, of which Mead is a member. And the terminology he’s using is part of the council’s foreign policy consensus-speak which, whether someone is an American conservative or an American liberal, sees America as an indispensable actor in world affairs.

    When speaking of coincidences when it comes to the World Bank releasing these new figures at this time, have you considered that the new numbers have the net effect also of benefiting China and India? After all, it’s easier to sell Americans on trading with a China whose economy lags behind the US significantly than with a China running neck-and-neck with the States.

    Moreover, I’m also not quite sure how this would help the dollar, since, if anything, revising China’s economy down at a time when the dollar is weak might actually encourage the Chinese to dump dollars, which would be disastrous from an American point of view.

  2. You’re absolutely right Matthew, I was pretty impressed with Mead’s explanation of them. I meant to include a comment that anyone looking for an explanation of the World Bank goof should read the article but forgot.

    My disdain about the stats is completely towards the World Bank, and rather, how media and financial/economic speculators use them as if they are the word of god.

    That they could make a $4-trillion mistake in numbers is huge – especially when taken into account what those numbers are used for (foreign aid, investment strategies, etc.). And that $4-trillion figure is just China.

    And again, regarding the timing of the figure “adjustment” (really, a lot more than an adjustment), my point is more one of using “statistics” as manipulation.

    I agree that it will also benefit India and China in so far as they will continue to be perceived as poor nations that are cheap to invest in.

    And, now I fully disclose that I am not even an armchair economist… I’ve little clue about such things – but my thoughts are that by revising China’s economy, and putting the US back as the superpowerhouseparty, it can’t but help to strengthen the dollar by bringing confidence back.

    Mead even directly references it when he says:

    The country faces huge domestic challenges — an aging population lacking any form of social security, wholesale problems in the financial system that dwarf those revealed in the U.S. sub-prime loan mess and the breakdown of its health system.

    To me he’s saying, “Look, China’s got bigger problems then us. Don’t lose sight of who really calls the shots around here.”

  3. Good points from Matt Stinson. Mead’s involvement with the Council on Foreign Relations make the objectivity of any of his publications a bit dubious, but that doesn’t necessarily mean he’s wrong. Other considerations of what a lower real GDP means for China – higher energy intensity (i.e. it takes more energy to produce X amount of output – used a barometer for efficient growth). Obviously a much larger amount of poverty (from 100 million to 300 million in one calculation). It also puts their recent foreign outings, primarily economic in the form of foreign direct investment to Africa, into a slightly different perspective (what the fuck is China doing giving handouts when they have such a huge problem with poverty themselves – oh yea, they are Machiavellian too).

    The issue with the stats is that the World Bank wasn’t maintaining an accurate Consumer Price Index (CPI) for China or India, but rather using some figures from the late ’80s. Obviously both countries have seen a lot of economic growth and therefor inflation in those 20-odd years, making it a pretty embarrassing oversight for the World Bank. I think the timing of the release has very little to do with gaining political ground – if anything it discredits the World Bank in many eyes at a time when they’re already struggling with other public embarrassments – i.e. their corruption task force, Wolfowitz seconded girlfriend, etc.

    BUT, a perusal through the World Bank website will provide you plenty of RAW data which is hard to access anywhere else. While their calculated statistics may have lost some luster, writing off the whole operation and the contributions it makes towards development would be an overreaction. As a economic policy consultant its one of many irreplaceable resources, despite what conspiracy theories some tinfoilers may hold. At least they were forthcoming.

  4. Yes and no, Ryan.

    On the one hand, Mead is certainly playing a bit to the “strong America” crowd by talking down China. But on the other hand, by saying China is no real threat, he’s also talking against the “China threat” crowd within his foreign policy circle. So the article is actually not as hawkish as it might seem at first glance.

    This schizophrenic aspect of Mead’s article reflects Mead’s fixation with the what he’s described the four main schools of American foreign policy — Jeffersonian isolationism, Hamiltonian economic globalism, Jacksonian militarism, and Wilsonian democratic globalism. His editorial seems to be straddling positions between Hamiltonianism and Jacksonianism.

    That said, when discussing China’s structural and economic shortcomings, Mead did put them into the context of global poverty. The most surprising thing in the article to me was that World Bank also downgraded the regional economy in sub-Saharan Africa. This fact was totally ignored by most media coverage of the World Bank’s announcement. The big news, after all, was India and China, but as Mead points out, the smaller African economies means fighting poverty just got harder.

    In fact, I wish Mead had written a different article, dropping the paragraphs you noted, and further explaining how the World Bank’s new data reveal new challenges to global growth and prosperity.

  5. @Matthew & Brian: Cheers for gracing this blog with your insights – it really is a pleasure to have smart folks like yourselves taking the time to share your thoughts.

    I’d not heard of Mead until I read his Times opinion piece – will have to do some homework on him. Sounds, at the very least, like an interesting guy.

  6. Pingback: The CFR Does China « Like Cooking a Small Fish

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