Dragon Tales

Feared by the right and reviled by the left, China is being cast as the world’s bogeyman. The truth is a little closer to home.

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In his conquistador age, King Philip II believed that the silver of Mexico and the gold of Peru would make the greatness of Spain. In this he relied, no doubt, on the wisest economic counselors of his day. In our similar age, Vice President Dick Cheney, holding similar views of oil and similar military advantage, has no similar excuse.

The merchants of Rotterdam knew that industry and commerce, not empire, are ultimately decisive. And China’s bid for the American oil company Unocal confirms that they were right. As it happens, there is no Unocal pipeline through Afghanistan. But suppose there had been? How easily our strategic asset could have become the property of the People’s Republic, painfully built and painlessly acquired.

Not that it would have mattered much. For the source of China’s rising power — its ability to buy petroleum and grain as well as to make cash bids for American corporations — does not lie in the companies it controls but in the goods stacked high in the ports of Shanghai and Hong Kong. So long as we buy what they sell, this can and will endure. Meanwhile, American soldiers bleed for Cheney’s philippics.

China today is attacked from opposite ends of our political spectrum: reviled on the left for low wages and outsourcing; feared on the right for rising military power. Occasionally, the two sides swap arguments. In a recent paper, Scott Lilly of the Center for American Progress warned that “China’s geo-political ambitions…are clearly less benign than proponents of unbridled U.S.-Chinese trade would want us to believe.” Meanwhile, former Reagan Treasury official Paul Craig Roberts writes that “the rise of Asia is coming at the expense of the American worker.”

Let me offer a different view. China is far too clever to confront American power directly. Like Europe and Japan 50 years ago, China realizes that the clear path to prosperity lies in allowing us to provide global security at our expense. And our leaders have foolishly accepted this burden. It’s this choice, and not low-wage competition, that’s leading to our failure to create the new industries and jobs American workers need.

China remains poor, but China is not Haiti, nor even the squalid sweatshops of Saipan, beloved of Tom DeLay. Its cities are not slums. Yes, when measured in dollars, Chinese wages are low. But factory wages are higher than other wages, and the jobs they offer are desirable. Security fences do surround the country’s special economic zones at places like Zhuhai, near Macau. But they face outward. They exist so guards can check the IDs of those who wish to enter; there’s no control on those who might wish to leave.

The cost of living in China is unbelievably low, and apart from housing, it appears to be falling. A worker in Beijing (where female factory workers must retire at 50) re- ceives a full pension of $100 per month. But she pays just $10 to lease her (rent-controlled) three-room courtyard home in the old district. In Shanghai’s Xiangyang market, surplus Tommy Hilfiger, YSL, Boss, and Gucci goods flood the stalls; vendors take what they can get. A silk polo shirt, listed at $90, sells for less than $10; cotton for half that. At a good restaurant near Fudan University a dinner of fresh fish, clams, mussels, shrimp, vegetables, soup, and beer costs $40 — for 10. And that’s fancy dining. Ordinary workers eat noodles and dumplings, tofu, soup, and rice for pennies.

How does this system work? Manufacturers there aim for the American market, selling to us at Wal-Mart prices. That’s where profit is made. They treat their factories as a fixed cost, produce at capacity, and battle for market share. What can’t be exported is dumped — on the home population. The result is a glut economy. There are no empty storefronts in China. Few of the innumerable outlets lining every road can possibly turn an actual profit. But with low and falling prices on goods, the city folk are richer than they ever imagined they could be.

Indeed, China’s big problem is the gap between its booming cities and southern coast, and its depressed northeast and backward countryside. The gap spawns a formidable migration — estimated at more than 100 million people — flooding the cities with peasantry whose dark and lined faces bespeak a harder life. Coping with this — by lifting the tax burden on farmers (a recent move) and by extending social security to the countryside (at least one pilot project is under way) — is China’s toughest challenge.

Compared to all this, to Chinese the raging question of the value of the renminbi (the “people’s currency,” whose unit is the yuan) seems pretty contrived. Until July 21, China pegged the RMB to the dollar, neutralizing exchange-rate pressures by buying up the dollars with which foreigners flood the country. This “intense manipulation” — as Lilly called it — helped to assure that Chinese export prices will remain low and stable. That’s good for trade and investment, though bad for the speculators who have the ear of Treasury Secretary John Snow and many others.

The Chinese have since moved to a tightly managed float, relieving political pressure with little practical damage. A big revaluation would have caused enormous trouble, killing their export profits. If factories closed and production fell, that could drive up internal prices, end the glut system, and provoke a furious popular reaction. Tiananmen was not the idealistic student uprising seen on television in the West, but, largely, a Beijing citizens’ revolt against inflation. Compared to that risk, the currency peg and export-led growth are proven successes — why not hold on to them as long as possible? That’s evidently the view of Chinese leaders, and it would be yours, in their position.

The idea of a currency fix for American problems is also an illusion. The gap in money wages is far too large; revaluation would not bring back a single lost job. If we want better jobs at home, we have no choice but to create them — in high technology, in public services, and in infrastructure investment, where the Chinese cannot take them away. We were doing this just five years ago. So why aren’t we doing it now? In part, because Cheney and his minions insist on missile defense and on pouring blood and treasure into Iraq. Not because of China.

Meanwhile, is China a developing military threat? In a recent cover article in the Atlantic Monthly entitled “How We Would Fight China,” Robert D. Kaplan explored the fantasies of American strategists. He suggested, among other things, that some bright egg in Beijing might send a diesel submarine against an American carrier group. “The Chinese will approach us asymmetrically,” the editors helpfully highlighted, “as terrorists do.” One can imagine a Beijing analyst’s reaction to this, as it must seem, plainly planted bit of paranoia. Is someone in the U.S. government planning to blow up one of our own ships, perhaps with a small atomic bomb, and blame that on China? If you’re looking for things to worry about late at night, it’s no less implausible a thought than Kaplan’s.

The idea that China is a nuclear threat to America is just silly. China has some 20 weapons capable of striking the United States; it would need thousands to destroy our retaliatory force. Its whole arsenal — maybe 300 weapons — is a barely adequate deterrent to the threat, long in the back of Chinese minds, that the United States might strike first at China. The fact that we bombed their Belgrade embassy in 1999 (“an accident,” we said, but no Chinese I know believes that) and the spy-plane incident of 2001 (our plane on their frontier) give plenty of ammunition for this fear.

Are we right to be concerned about China at all? Yes: Political liberties and the environment are vital problems. The economy and the People’s Liberation Army are not. The world’s real economic crises are elsewhere: in Africa and Latin America, where free-market capitalism is failing, and here at home, where our strange new militarism threatens us with the fate of the Spanish empire.


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