Don’t Believe the China Hype

When it comes to assessing Chinese power, things aren’t always as they seem.

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The coronavirus pandemic seems to cement the notion that China is replacing the United States as the world’s premier economic superpower.

Should we have expected anything else? After all, as the conventional wisdom goes, the Chinese make everything; Americans just pack the stuff into Amazon boxes. Beijing plays the long game; we can’t think beyond the next election or quarterly earnings report. China cracked down hard to grapple with the coronavirus and now appears to be on the mend; the U.S. is still languishing, as the death toll mounts and anti-racism protests grip the country.

Well, maybe not: With China, things aren’t always what they seem. Many apparent Chinese strengths—including education, manufacturing, and technology—aren’t quite as strong as many Americans believe. And neither are China’s chances of surpassing the U.S., something policy makers and pundits in Washington should keep in mind as they fret over Beijing’s ostensibly growing might.

China’s rise has often been presented as a historical inevitability: A decadent America, stretched to the breaking point by its global commitments, and weary of its superpower burdens, will give way to the more focused, organized, and motivated up-and-comer. Pax Americana will join Pax Britannica and Pax Romana in the dustbin of history. Ray Dalio, the founder of the hedge fund Bridgewater Associates, has placed China’s emergence within a long-established cycle of global power, comparing its ascent today to the rise of Britain after the Industrial Revolution, and the Dutch Republic, which created a seaborne empire in the 17th century.

The Chinese propaganda machine enjoys reinforcing this perception of American decline. Amid the pandemic and protests, Chinese media have contrasted Beijing’s (supposedly) superior virus-fighting techniques with the enfeebled response of the Trump administration, claiming that Chinese governance is superior to American democracy. Adding in the tumult caused by the death of George Floyd, the Global Times, a Communist Party–run newspaper, wrote that “Chinese analysts” were warning that “the U.S. has become a ‘failed state.’”

Historians, journalists, and experts have been predicting the United States’ demise for decades. In the 1980s, Japan seemed destined to overtake the U.S. as the world’s top economy, propelled, much like China today, by state-led economic policies deemed superior to America’s laissez-faire capitalism. But Japan didn’t have the mojo many believed: Its economy never fully recovered from a catastrophic financial crisis in the early ’90s, and the business practices once considered world-beaters are today derided.

Can China do better? Sure, it will almost certainly continue to gain wealth and influence. But to become No. 1, Beijing must overcome hurdles even higher than Japan’s, while the U.S. has retained a host of advantages that are often overlooked or underappreciated.

Forgotten is the gargantuan lead the U.S. still holds by just about every measure, even after China’s four decades of hypersonic economic growth. The total output of the U.S. economy was $20.5 trillion in 2018, significantly larger than China’s $13.6 trillion. Calculated on a per-person basis, the gap is even more glaring.

But these indicators don’t capture the true extent of the American edge. Derek Scissors, a scholar at the American Enterprise Institute (AEI), argues that a much better comparison is of national wealth—the value of real estate, stocks, and other assets—because it accumulates over time. By this metric, Americans remain significantly richer than the Chinese. In one estimate, U.S. household wealth was $106 trillion in mid-2019, Scissors noted in a recent report, compared with an estimated $64 trillion for China.

Nor is China challenging the American position at the core of global finance. Even though the size of Chinese stock markets continues to swell, controls on foreign share ownership and cross-border capital flows have relegated them to the international sidelines. In times of stress, such as the coronavirus pandemic, global investors don’t flee to Chinese bonds as a safe haven, but to U.S. treasuries. And despite the persistent worries about China’s currency contesting the primacy of the dollar, the tightly managed renminbi remains a bit player: According to data from the financial services network Swift, the renminbi was used in a measly 1 percent of international payments in April, compared with the greenback’s 48 percent share.