In early 2007, Niall Ferguson coined the term “Chimerica” to describe the economic relationship between the United States and China. At first, in 2007, Ferguson said Chimerica “seemed like a match made in heaven” – the Chinese did the lending, the Americans the borrowing. China and the US accounted for 40 percent of global growth from 1998 to 2007.
Now, Ferguson has decided otherwise. In a New York Times editorial written before Obama’s visit to China, Ferguson says, “Right now, Chimerica clearly serves China better than America. Call it the 10:10 deal: the Chinese get 10 percent growth; America gets 10 percent unemployment.” Ferguson is not the only Western scholar to make these points – from articles I’ve read in the Economist to the Wall Street Journal to Reuters, there seems to be a general consensus that China could treat the US a little better, specifically through a currency revaluation.
The Western media has provided the Chinese point of view via vague and brief remarks from Chinese officials. Until I started reading Chinese blogs on the issue, I was unclear on China’s side of the story. As Abraham Lincoln says, “These men ask for just the same thing, fairness, and fairness only.” In such a complicated economic relationship such as the one between China and America, is there really a way to determine the “fairness” of the relationship?
Zhang Hongliang is an economist that has been writing blog articles concerning China’s economic and financial situation since 2006 and his blog articles have received widespread attention, especially for his biting criticism of “Chimerica” and the harm that it has done to China. He says that Chimerica is nothing more than a cyclical continuation of a colonial-style economy.
Last week, Zhang Hongliang came to lecture at Beijing University and made the following six points about the impact of Chimerica on China:
- The formation of a new pattern of industrialization: The US enjoys the accomplishments of industrialization while China bears the burden of the negative effects of industrialization. This means that the three disasters of the modern economy are all shifted to China: environmental pollution and the depletion of resources, overproduction, and inflation.
- The formation of a new pattern of the distribution of wealth: Whatever China has, the US gets to enjoy. This double-loop leads to the outflow of China’s wealth and locks in China’s poverty.
- The formation of a new pattern of economic development: China has become the international milking cow and the world’s garage. In terms of the economy: foreign trade accounts for two-thirds of China’s GDP and foreign investment accounts for two-thirds of foreign trade. In terms of production: the West uses rules to control finance, capital to control resources, technology to control industry, and brands to control the market. In terms of resources: the West uses centralized planning to handle China’s market decentralization.
- The integration and assimilation of the interests of the wealthy people in the US and China intensifies the burden on the ordinary Chinese people.
- Political influences can be seen in the integration of US and Chinese policies. China’s policies have to account for and be built upon the foundations of American policy, and China’s decisions are all in consideration of the requests of the US.
- Cultural influences are noticeable in the increasing Americanization of Chinese ideology and culture. Not only is Chinese culture more and more resembling American culture, the way in which Chinese culture is changing is fulfilling the hopes of the US. Also, in terms of spiritual culture, China and the US are walking toward opposite ends of the spectrum.
In a recent blog article, Zhang Hongliang writes:
First, the US used dollars to get China’s goods, then they used bonds to get China’s dollars, and now they want to use stocks to get back their bonds, lastly, they will use the stocks to make China in debt; eventually China is not only handing over goods to the US in vain, not only handing over US dollars to the US in vain, but China will eventually be in debt to the US!
On the other side of the Chimerica coin, Ferguson writes:
The authorities in Beijing must be made to see that any book losses on its reserve assets resulting from changes in the exchange rate will be a modest price to pay for the advantages they reaped from the Chimerica model: the transformation from third-world poverty to superpower status in less than 15 years. In any case, these losses would be more than compensated for by the increase in the dollar value of China’s huge stock of Renminbi assets.
According to this Forbes article, the US is now spending trillions of dollars to help its own economy out of the recession, China’s main currency investment is also devaluing: dollars. In the end, China ends up financing the economic recovery of the US because they have to continue buying dollars to keep the value of the renminbi down and dollars up.
Now, I am not a qualified economist by any means, but it seems like the Chimerica model is failing in many respects. Otherwise, why would both sides be complaining about the relationship?
Rather than the symbiotic relationship it was supposed to be, it seems that both sides are realizing they have less control over the other than they actually need. China cannot control US spending and the US cannot control China’s currency values. The best case scenario will be that the past year or so will be a learning experience for both sides and the US and China can learn to cooperate, realize that not everything can be win-win and that long terms interests should not be sacrificed for short term gain.
21 comments
PLEEEEEEEEEEEEEEEASE we were already screwed when Bush Jr walked into the White House over 8 years ago.
Chimerica. Chicom. Might as well call it Americana. How about we call it Chinamerica (rhymes with China miracle).
This article notes a fact lost on the majority of Americans whether trained in economics or not: American consumption of cheap Chinese goods, coinciding with a declining dollar, is a transfer of wealth from Chinese workers to American consumers.
What is not made clear, however, is that the Chinese government decision to prop up the dollar is an obscure one from an economic viewpoint. It has favored eastern export industries at the expense of other sectors and has deprived Chinese consumers of purchasing power and the right to equitably enjoy the fruits of their labor.
Another point which is hinted at but not made explicit is the nature of the steps that – short of drastic and undesirable currency realignment or a longer term redeployment of Chinese capital – can be taken to restore some balance in the relationship. Specifically these would involve lessening the implicit political and economic rivalry by (1) America dropping restrictions on hi technology exports, embracing China as a friend an partner internationally and (2) by China loosening the all too evident web of market restrictions subsidies and other neo-mercantilist features of its economic policy. I am sad to say that most of these measures, which would be adopted in any sane international environment, seem to be beyond the imagination of the current crop of leaders on both sides.
This article carries some basic mistakes… All the moaning of Mr. Zhang Hongliang is over some side effects of all the advantages that China got from this relationship. It’s highly subjective, threfore has a little scientific value. To me what he’s saying is pure populism. And how come financing US debt makes US dollar stronger? It’s quite oposite – flown of more dollars into the market devaluate it’s currency which is clearly seen in the market and resources prices.
In fact, it’s pretty win situation for China. China has set up Chinamerica which helped lead to crises, as withhold dollars, restraining buying from US. Quite smartly and silently China hit US out of their track. And not only China, but even more Taiwan, Korea, Japan, and other reserve keeping countries. By doing so, they silently where pumping the bubble of American economy, which now people still doesn’t seem to see it… American economy is like bucket full of huge holes in the bottom. There so no point of puring more water in the shape of printing new money into it (which is the case right now) until the holes are not fixed. In US people believe that somehow, magically perhaps, they will disappear and whole world will keep on accepting their worthless currency for nothing in exchange…
America is only helping it’s own way down. China may loose it’s best buyer, but will grew to main position in worlds economy… the question is what’s next?
According to some economists the answer to the question what is really missing in Kopenhagen is a new economic vision, a new economic gameplan for the world that could take us from despair to hope; from adversity to opportunity.
As long as it’s just about political benchmarks, everyone is going to see it as a punishment and noone is going to make a commitment. But if we see the benchmarks as part of an economic gameplan to get us to a new industrial revolution and a post-carbon era, then our entire psyche changes. Then we begin to think about our future in positive terms, we begin to roll up our sleeves around the world and commit ourselves to laying down a new infrastructure for a new industrial age.
We would have to bring together the civil society in partnership with local businesses and governments. They would have to join forces; otherwise it won’t work. If it’s just a business plan, it won’t make it. If it’s just government, they will be issuing statements until Kingdom comes. But if all three sectors come together; that is goverment with public capital, civil society (NGO communities) with social capital, business sector with market capital – and parallel that with reshaping our educational system, so that we produce a generation that is globally empathic and thinks in terms of biosphere awareness – we may get there.
Democracy however, may not be equiped to deal with these urgent global matters effectively on a short term. Perhaps an eco-dictatorial system would be more resilient. In any case, this crisis is not merely economic. America & partners need to stabilize and downsize their emissions drastically, before it’s too late. Perhaps China needs to stand up and show us the way to sustainable development, in stead of vice versa.
If nothing happens, our natural habitat will soon disintegrate by itself. Who would by then still care about Chimerica?
We would have to bring together the civil society in partnership with local businesses and governments. They would have to join forces; otherwise it won’t work. If it’s just a business plan, it won’t make it. If it’s just government, they will be issuing statements until Kingdom comes. But if all three sectors come together; that is goverment with public capital, civil society (NGO communities) with social capital, business sector with market capital – and parallel that with reshaping our educational system, so that we produce a generation that is globally empathic and thinks in terms of biosphere awareness – we may get there.
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HI Alley,I’m strongly agree with you for the words above and just share a same view by your profound thought,I guess you are a friend from America? and it is your simple but easy-reading interpreation help me get through to the phonemenon with smooth comprehension.Thanks!!
China needs a market for it’s low industrialized cheaply produced goods and by bailing out the US (although not to the extent that we often hear,, the Chinese help is not even close to the pacemaker that the Chinese love to compare it to) they have more influence in where the US buys it’s goods. If China didn’t actively try to interfere the production would just go to other Asian countries where the minimum wage is even lower. Its also the reason why the Chinese government doesn’t really work too hard on lifting the 800 million workers out of poverty. The CCP needs their blood, sweat and tears to continue the double digit economic growth and the foreign hard currency they get into the country. China just has too many people to become a true world power. The more the gap grows the more angry the forgotten millions will be and it’s not hard to imagine what that could lead to. The Chinese government is caught between a rock and a hard place on this major issue and any solution will have a markable cost.
The more the gap grows the more angry the forgotten millions will be and it’s not hard to imagine what that could lead to
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GuoBao,you really to the point,and the truth is China has already on the verge of danger to some extent,millions of forgottens,soaring unrest of undergraducates’ unemployment,where the most important is that the outlets of reasonable flow of different social class has been ablsolutely blocked.People live in a community that more like a stuffy barrel.
Then,What’s the problem that cuts across all strata of society which bothered China so much? The answer is simple:Democracy;All problem that embed in this great nation all derive from the reason of democracy deprivation of ordinary people,cause without this,there will be no authentic & widespread equality.This will plunge China into a real chaos if not properly handled.
GuoBao,you really to the point,and the truth is China has already on the verge of danger to some extent,millions of forgottens,soaring unrest of undergraducates’ unemployment,where the most important is that the outlets of reasonable flow of different social class has been ablsolutely blocked.People live in a community that more like a stuffy barrel.
Then,What’s the problem that cuts across all strata of society which bothered China so much? The answer is simple:Democracy;All problem that embed in this great nation all derive from the reason of democracy deprivation of ordinary people,cause without this,there will be no authentic & widespread equality.This will plunge China into a real chaos if not properly handled.
Its the idiocy of “free trade” which is simply forced trade with the greater slave, serving to ruin the First World and rewarding totalitarian capitalism and fascism.
The present trade situation ultimately gives China the winning hand.
China pegs it’s currency to the US dollar.
China begins by manufacturing cheap consumer goods and over time more sophisticated items such as cars and electronics to US. Manufacturing in US disappears.
US trade deficit steepens which causes an increasing budget deficit.
China extends credit to US by buying US debt to continue process of eviscerating US manufacturing and using US debt/credit to purchase raw materials around the world.
Process will come to an end when China decides it does not serve it’s self-interest to continue.
The US will loose it’s standard of living and will react negatively like an ugly American.
Now, this is short and good explanation. You said it right!
Hmm, interesting. So it seems that China is to the US as bankers are to consumers. This is the model that America has been following domestically for decades. Lending more and more to increasingly indebted people to the point that they can’t get off the ride but also can’t continue it. It is folly and we are witnessing the result. It destroys both sides.
It certainly was not China that initiated this system. It’s America’s “best and brightest”. We all need to think very hard about what an economic system is supposed to accomplish.
Key,after I check the entire article of the original blog post in sina,It’s really a good article that deserve to translate.Tks
If anyone is interested, Niall Ferguson just came out with a working paper entitled “The End of Chimerica.”
http://hbswk.hbs.edu/item/6094.html
That’s so extremely helpful to me for I’m writing my thesis which is related! Thanks a lot CC!
There will always be a reason to favor such alliance just as there is always a reason not to favor it; leadership is the ability to know the difference, and the ramifications of making the right versus the wrong judgment. Success is never automatic.