Follow the money

ARTICLE: The $1.4 Trillion Question, by James Fallows, Atlantic Monthly, January/February 2008

A pretty good piece that poses a fabulous question and then gives you a "Casino"-like tale of money movement. Like Scorsese's movie, then, the article intrigues and informs but is somewhat unsatisfying: the "what do we/they owe" question is never really addressed.

What Fallows doesn't address in China's vast surplus/savings is the huge and very real current sovereign debts and future mandates that are hidden in this development scheme: overseas resource dependencies demanding investment stakes, future aging costs, current and future enviro costs, future requirements to build out (and up) the poor interior, and so on.

Those are real sovereign liabilities because the people will expect some/much government help in these matters over time to ensure continued development and sustained movement up the product chain (gotta get as rich as possible before getting old).

Having said all that, Fallows' analysis of the government's logic is dead on. I suspect that, with all his time spent in China, we'll see a book that does a big turn in explaining China to America. That will be a huge journalistic endeavor, and most welcome from someone with his considerable narrative talents.

As for the larger strategic question, we owe China a quiet international security order within which to develop, and sufficient partnership so as to obviate too much defense spending on their part. Eventually, Deng's "grand compromise" of 1992 (PLA supports him on market acceleration in return for money and cover to modernize) must be tempered so that China doesn't field a military for a war that should never happen and which it could never win. It needs to field a SysAdmin-heavy force that partners with us in mutual dependence: we can't rule the peace with our Leviathan-heavy force, but they can't rule war with their Leviathan-lite force either, so we must cooperate in extending and protecting globalization to our mutual advantage..

We owe China this strategic understanding before the 5th/6th generations of Chinese leadership hit some of the fish-or-cut-bait moments that must inevitably arise for them in coming years.

Fallows hints at those underlying tensions at the end of the piece.

(Thanks: TurcoPundit)

Comments

[William R. Cumming]

Fallows is clearly one of the most knowledgeable ex-pat observers of China. There may be an underlying historic reason for the current relationship between China and the US that is cutural and probably forest as opposed to trees. From the missionary and trader/clippership era to the present, the people in the US that knew something of China were both awed and fascinated by that cuture. Even FDR acted to make sure that the then new UN had China on the security council when economics and political clout probably argued against it. FDR bet on the future of China as a great power. In a way the "Who lost China" debate in the long run established to the power elite in China (then and now Communist) that whatever US involvement it was not going to make the political choices for China's future by military intervention. Thus a basic trust relationship developed. Also, the dynamics of economic growth in China relied on foreign assistance both technical and economic. That which came with the least strings was from the US. Probably only the Japanese-US relationship causes the Chinese pause. Certainly not the Russian-US which always gets caught up in the inferiority complex of the Russian's and their strange demographic evolution. China always feels it can bide its time. The long long run is the important thing. The US whatever its future is tied closely to China and China deep down knows that its insurer of last resort diplomatically and economically is the US, no other country can or will do it. You have started listing favorite books and do you (Tom) have a favorite of the diplomatic history of China and the US? Who are the real China hands in the US today besides Secretary Paulson?

[vimothy]

Hey -- I thought I sent you this! Good stuff regardless ...

[Louis Heberlein]

I agree with the Fallows/Barnett/Cumming comments, but I would also like to see additional comments on the social/cultural orientation of the middle class private investors in both Japan and China. Both the governments in Japan and China have tried to direct foreign investments through government/big business channels, but the private investors were interesting and may turn out to be more of a future factor.

Japanese private/business investors focused on US real estate in the 1980s and 1990s because their domestic experience had indicated it was a sure thing with good growth. So our real estate inflated greatly in the target areas, then crashed. There was a reluctance to write off the losses in Japan which then restricted efficient investment and flattened their economic growth for some time.

I think the Chinese middle class investment tradition has been more oriented towards their gambling traditions ... big risks, accept losses as part of the game, start the next round. One of the reasons Mao isolated the Chinese economy from global contacts was that he had seen a difficult investment gambling cycle in his youth and decided the Chinese culture had to be made more prudent to avoid exploitation.

It would be interesting to see the full scope of Marshall's thoughts about why we should let China evolve rather than try to restore the British/US 'mentor' role through Chaing.

My bottom line: foreign affairs info is only a necessary, but not sufficient, factor in understanding our relationship prospects with people of other history and cultural patterns.

[Anonymous]

you may have, too, vimothy. this is the one he sent me