China economic clout good for U.S.: Column

Ted C. Fishman 4:05 p.m. EDT June 15, 2014

USA Today

Instead of feeling threatened, Chinese buying power can help us and improve relations.

Early this spring, the World Bank announced that, by one measure, the size of the Chinese economy at the end of 2011 was nearly equal to that of the U.S. and, this year, it will be bigger. Americans are fearful of China lately. A bigger economy seems to be giving China sharper elbows. The Asian giant has been pressing territorial demands. China's military supports cyber spies who steal American industrial secrets. China's President Xi Jinping warns the U.S. in speeches that America will get burned if America stymies China's assertion of its goals.

Should Americans feel threatened? Surprised?

China's government has set economic and military goals commensurate with the country's size and sense of historical place. It wants to right-size its cultural and political clout, too. Even so, a close look at the relationship between the U.S. economy and China's offers comfort. And, dare we say it, the promise of peace and prosperity.

First off, there's the perception, fed by the World Bank study, that the U.S. will soon lose economic primacy to China. Not so. The two most common ways to compare countries' gross domestic products yield wildly different results. The most commonly used method is nominal GDP. It captures the value of all the goods and services sold in China, if the money paid for them were converted into dollars. By this measure, China's GDP is around $9.5 trillion and U.S. GDP is roughly $17 trillion.

The alternative approach used by the World Bank is called Purchasing Power Parity GDP. It totals everything bought and sold in a country and then calculates how much it would cost to buy all that stuff in the U.S. Dollars generally buy more goods and services in China than in the U.S., so the PPP calculation adjusts for that. PPP is a great measure for how well people in China live. But PPP is not the best measure for China's economic footprint in the world. There, the U.S. remains the champ. The median per capita income in the U.S. is around six times higher than in China.

China is, nevertheless, gaining economically, and Chinese spending power is climbing. That can be great news for our economy -- and for comity between our two countries. A stronger Chinese economy expands the ranks of Chinese businesses and middle-class consumers and also the ranks of new buyers of American exports. As China grows, U.S. trade increases with other countries that are selling ever more to China and need American goods to do it. U.S. mining and construction equipment, for example, finds its way to Australia, Canada and Brazil so those country's minerals can find their way to Chinese ports.

Yet, the prospect of Chinese foreign direct investment (FDI) in the U.S. — the kind where Chinese investors buy or establish businesses within our borders -- may provide an even more important link. China already holds around $1.3 trillion in U.S. Treasury debt, but it can cash out of those any time. "At the economic level," former secretary of Treasury Hank Paulson recently said, "the most enduring economic relationship between countries is direct investment, not what countries exchange in trade or put in Treasuries." Paulson notes that China's FDI in the U.S. pales compared to the rest of its international portfolio, but it is growing.

In 2013, China's businesses spent $14 billion acquiring U.S. firms or starting branches on our soil. Chinese have spent around half that in the first three months of 2014 alone. American policy makers in Washington bemoan China's growing clout, but in the states, cities and local chambers of commerce, leaders are working hard to attract Chinese companies that can create good jobs. Around 5.3 million Americans work for outposts of foreign firms in the U.S. On average, they make close to $78,000, or 30% more than the U.S. average overall. That's eight times the average per capita income of a Chinese worker.

Still, China is now the world's fastest growing big economy. If we are smart about letting Chinese investment in, we can grow richer still as China continues to prosper, and economic ties dispel scarier inclinations.

Ted Fishman, author of Shock of Gray and China, Inc., is a member of USA TODAY's Board of Contributors.

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