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ECONOMICS AND FINANCE

WHAT YOU NEED TO KNOW ABOUT THE CHINESE ECONOMY

5/29/2020

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Vince Dhimos answered a question at Quora.
 
https://www.quora.com/What-do-Americans-typically-get-wrong-about-the-economy-of-China/answer/Vince-Dhimos
 
What do Americans typically get wrong about the economy of China?
 
Almost everything, and the abysmal ignorance of the US public is vital support for Trump’s policies. Ignorance is a key commodity for US presidents and other politicians because an intelligent public would sink their careers. Remember that as you read on.
 
The article linked below answers much of your question:
 
StackPath
 
The US public typically thinks exports are the main component of the Chinese economy. Not so, and the percentage of the Chinese economy depending on exports is dropping fast. Exports accounted for 37% of China’s economy in 2007 but only 20% in 2016. Nowadays China’s biggest customer for goods made in China is China.
 
Americans generally think the US accounted for a vital share of these exports. In fact, the US accounted for only 16.8% of China’s exports in 2019. But since exports are only 20% of the Chinese economy, then even if the US completely stopped buying Chinese exports, China would survive.
 
The US public typically thinks this 16.8% is all Chinese-made. But due to the components in these exports that were made in other countries, the supposed 47% US trade deficit with China is really only 28%. Still substantial but much less than assumed.
 
Many Americans forget that the US exports substantial quantities to China and, as mentioned in the above point, some of the components in goods imported from China come from the US. So when Trump boasts of “decoupling” the US and Chinese economies, he is just deceiving his largely gullible voter base. Decoupling would be like removing threads from a delicate woven fabric. If you remove a certain percentage, the fabric gets weak. If you remove still more, the fabric disintegrates. The US economy is already greatly weakened by the pandemic and the Fed’s rampant money printing in response thereto. There is a great risk that if a new wave of the pandemic occurs later, eg, in the fall, as experts predict, the Fed would be obliged to print still more unbacked dollars. Further at some point, China could start ditching its Treasuries (in fact, it has already started and its published commentators predict more to follow). Once investors start seeing both the rampant issuance of dollars coupled with the Chinese sale of Treasuries, many will lose faith in the dollar and the dollar could eventually lose value, causing hyperinflation and a loss of the dollar as the world’s no. 1 reserve currency. Some billionaires are already turning away from dollar-denominated stocks. Thus, what Trump hoped to do to China, he may have in fact done to his own country.
 
The US grassroots are generally unaware that Silicon Valley is more dependent on China for technology than other sectors, and tech workers, who understand the interconnectedness, are already begging Trump not to tamper in this area. The US stands to lose more than China.
 
Many Americans also forget that China immediately responds to US restrictions – ie, tariffs, sanctions, threats to cut China off from the US financial system, and recently, banning the sale of Chinese stocks -- by imposing restrictions of its own. US soybean farmers were the first victims and many went bankrupt. When Australia – a puppet of Washington – started echoing US anti-China rhetoric, Beijing immediately threatened to stop buying a half-billion dollars’ worth of Australian barley. There is no immediately identifiable alternative market for the soy and the barley, and this trade may well be lost forever.
 
Finally, in their enthusiastic drive to “bring back American jobs,” US Americans tend to forget the most important factor of all, ie, commodity prices and their effect on inflation. Many forget that one of the main reasons for the granting of Most Favoured Nation status to China in 1979 coincided with an 11.35% inflation rate that year, which must have been on the minds of the lawmakers, who realized that China, with its low labour costs, could help ease the prices paid by US consumers. China helped solve the inflation issue for the next 40 years, thereby greatly boosting the US economy, but by now, under Trump’s influence, many Americans have forgotten about this. And they still forget that China is the country best equipped to help the US fight inflation. Trump is grateful for their forgetfulness and for their willingness to swallow every word that tumbles off his tongue.
 
The US also ignores the fact that China has the numbers of experts in tool making and other aspects of manufacturing necessary to supply the US and the world with cheap high-quality products. No other country has this potential. With 5.4 million recent STEM graduates as of 2016, vs 568,000 in the US, it would take the US at least 4 years to make up even a fraction of the shortfall, but the US administration is not even talking about this because it has no effect on voter decisions. And yet, most Trump supporters probably naively assume that Trump will just dissolve the trade relationship with China and the US and replace the Chinese manufacturing capacity almost immediately. What Americans don’t know is their biggest threat.
 
Even before the pandemic, Trump’s war on the Chinese economy was already a major threat to the world economy. But now with the pandemic added to it, and in view of the enormous gap between what Americans expect and what they don’t know, this threat is magnified several-fold.
 
All of the above leads to the conclusion that, in US-style “democracy,” the politicians trusted to solve problems are focused almost solely on getting votes, often by making unfulfillable promises and fantasy-based statements, including allegations intended to create enemies which the government then pretends to fight – thereby making the voters more psychologically dependent on them, and not on solving pressing problems, especially economic ones. This vote-focused system stands in stark contrast to the workings of non-US-aligned countries like Russia and China, where the focus is not on declarations catering to public expectations and hopes – which are typically unfounded in the US – or on the generation of friction with imaginary enemies, but on actual performance that solves the problems facing the citizens. The media in the West are therefore tasked with supporting the fantasy narratives put out by the government and obfuscating the objective truth about their and the world’s situation. It’s a difference of day and night.
 
In the US and its satellites, ignorance of the public is actually a prerequisite for politicians focused on re-election, while in non-aligned countries, with stronger but less “democratic” governments, an educated public is desired and the state-owned media have a strong incentive to tell the truth, particularly with regard to the differences between their state and the US-led West, because the truth favours them.

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