By Sydney Erhardt
At the United Nations General Assembly, President Obama is opting not to stay at his usual hotel. The Waldorf Astoria, under new Chinese management, has recently been accused of spying on high-profile visitors—although that hasn’t stopped Vladimir Putin, Narendra Modi and Xi Jinping from making reservations. The bugging rumors are just the start of tensions between the United States and China. Right now, the bed bug in the room is the shrinking Chinese economy.
With the lowest GDP levels since 2009, China’s economic growth rate during the first quarter of 2015 was a modest 7.7% compared to the 10% average that has held steady through the past three decades. Critics even go so far as to say that Beijing is likely skewing those numbers down in it’s favor. There are two schools of thought here: “Panda huggers” seem to ignore the problem and put blind trust in Chinese policymakers. “Dragon slayers” fear a domino effect to the world economy and see China taking down other super powers. Where does the United States stand? Perhaps straddling the line.
Trade between China and the United States. will be at the forefront of the economic slump. China is spending less and therefore importing fewer goods from the United States. With China poised to overtake Canada as the United States’ primary trade partner, the idea of fewer exports has caused alarm. While the American economy will weather the lag in trade, the Chinese economy is going to take a hit. The deficit in China has been caused by lack of consumer contribution to GDP, however, that’s not a problem for the United States. Consumers in the U.S. make up the majority of the nation’s GDP clocking in at about two-thirds. In order to foster sustainable economic growth countries like China must strike a balance between foreign and domestic contributions to GDP growth. Thus far China has failed to differentiate between artificial and organic growth.
The second issue plaguing the Chinese economy is the tension between small firms and massive state-owned corporations. Thanks to the pressure from many world leaders, China’s President, Xi Jinping, has made promises to push policy that squelch over-competitiveness in the future and protect the small firms from domination in the market. Huge foreign markets in Australia, Africa, Brazil, Venezuela and Russia are feeling the effects of lack of demand for natural resources that are used in industrializing nations. A new steel, oil, and soybean glut has resulted in markets that used to be strong. The cure? Privatizing large state industries that will supplement spending levels ratcheted down by the Chinese government. Getting past divisive bureaucrats is first.
China is a mixed economy, but on a scale of similar economies it tends to lean command driven. There’s only so much other countries can do to protect themselves when the real problem is fundamental: how China conducts its business. An International Monetary Fund report recommends implementing “…bold structural reforms, such as moving to a more market-based financial system, improving the management of government finances, and leveling the playing field between state-owned enterprises and the private sector.” Change can only be influenced by the United States and other countries if continuous stress is put on Chinese government officials. Perhaps President Obama is already starting to put the pressure on- one hotel chain at a time.
Sydney Erhardt is a freshman in the Elliott School of International Affairs studying security policy and political science. She’s interned for the Minnesota House of Representatives and is a member of Women in International Security. After graduation she hopes to pursue a career in the foreign service.