USA And China, Two Strange Bedfellows -- Economic Analysis (34)

USA And China, Two Strange Bedfellows -- Economic Analysis (34) Although the US and China are so different in many respects, they are increasingly dependent on each other whether they like it or not. In fact, the future of the world hinges on how close these two countries cooperate. Both are vast continental countries with over 300 million people in US and 1.3 billion in China. The US is the oldest democracy since its birth in 1776. China was the oldest empire lasting from 211 B.C. until becoming a republic in 1911. The Communist Party has ruled China since 1949 and transformed itself to an authoritarian capitalist regime. At present, you can do anything in China except openly criticizing the government. In fact, the business climate in China resembles the American Wild West one hundred years ago. Despite all their differences, both peoples exhibit high energies in business and technology developments. This has resulted in rapid growth of trade and investment between them. The following shows their mutual dependence: • The US is running a huge trade deficit with China every year. In 2008, imports = $338 billion, exports = $72 billion, deficit = $266 billion. • While the US spends beyond its means to turn itself into the worlds largest debtor, China has become the largest creditor with a foreign currency reserve well over $1000 billion. • The US government borrows money by regularly issuing billions of dollars worth of Treasury Bonds. China quietly buys the bulk of them to strengthen its creditor position. • American corporations are flocking to the Chinese market with heavy investments in manufacturing, retail, and finance. US investment in China averages over $4 billion a year, about 10% of total foreign investment in China, still lagging behind Asian investors from Hong Kong, South Korea, Japan and Taiwan. • Besides selling to America, China buys tons of wastes and recyclable materials, thereby relieving the stress on US environmental pollution. • On the other hand, 20% of air pollution in Los Angeles is attributable to the polluted clouds drifting from Chinese cities across the Pacific. • Although both governments quarrel over various issues, there exists no enmity between the two peoples. While the French disdain American pop culture, the Chinese like it. Note the success of Coke, Avon, McDonalds, KFC, and American movies/music in China. The Chinese even want to live like Americans. When that happens, can you imagine the environmental conditions of the world? What does the future hold with the rise of China? The most important question pertains to environmental degradation, especially with two other continental countries waiting in the wings, India (1.15 billion people) and Brazil (0.19 billion). It all depends on how the US and Chinese governments cooperate on energy policy, thereby setting a good example. The logic is no energy no growth, but more energy will worsen the global environment that cannot sustain growth. The past eight years were marked by competition rather than cooperation between US and China in energy policy. Although the US is the biggest polluter consuming 25% of the worlds energy supply, it does not have the will power to move away from oil. Only a big rise in oil prices can force the US to restrain. However, the Chinese government has a realistic plan to diversify away from oil to other sources such as hydro, nuclear, solar and wind. Note that almost the entire stock of Chinas bicycles has been converted into plug-in electric bikes. Furthermore, Chinese passenger cars have higher fuel standards than American ones. US oil policy has been hijacked by the oil and auto industries. No wonder Americans have to pay with blood in Iraq, and to import from unfriendly countries like Venezuela and Saudi Arabia. The Bush team also believes that they can drill themselves out of the oil shortage. On the other hand, the Chinese government is carefully cultivating relations with Iran, Russia, Venezuela, Mexico, and Nigeria to secure their oil supplies. Both countries have huge coal deposits equivalent to one half of the worlds supply. If they continue to burn this dirty fuel, the world will not be able to breathe in two decades. Meanwhile, China is building a new coal plant a week to generate electricity. The US is pursuing new clean coal technology while still employing the old one. The future is very unclear because coal is cheaper than oil, and clean coal may require more energy to produce. For further information, please email to stockfessor@comcast.net

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YouTube | February 20, 2009

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