How to "Deal" with China: Invest at Home

Recent data from the U.S. Census Bureau makes distressingly clear what has been apparent for many years now: the median income and quality of life of the American middle class is firmly on the decline. Poverty in America is on the rise and there is no indication that this will change in the near future. Meanwhile, conventional wisdom concludes that China is on the rise, and some staunchly nationalistic pundits like Peter Navarro argue that China is the chief culprit of America’s economic malaise.

However, from what I have seen as an American living in Beijing, China’s youth are facing the same problems as American college graduates. Despite rapid growth, China’s college grads are facing high unemployment and rising costs of living. No matter how unequal America has become the income gap between rich and poor is still moderate compared to the rural-urban divide of China. Major coastal cities have development indices nearing those of European countries, while certain inland provinces are more similar to sub-Saharan Africa.

Navarro, the most trenchant American critic of China, says that Shanghai’s nouveau rich is frittering away money that used to go to unemployed Americans. By this logic, he should be equally interested in how American billionaires are using their hard-earned wealth to employ their fellow countrymen. Nevertheless, I doubt the dizzying wealth of China’s tycoons makes China’s 242 million rural migrant workers happy. The Communist Party leaders, while publicly gloating over the West’s debt problems, are worried more than ever that slowing growth will lead to social unrest.

When I first came to China as an exchange student in 2009, I was constantly reminded of the recent financial crisis and China’s triumphant mood following the Olympics. Nearly everyone I talked to, from my professors to taxi drivers, agreed that opportunities were increasing. Now, two years later, people are noticeably less sanguine about their future. Taxi drivers, the chief object of expat scorn recently, are now stinger than ever — most likely due to rising costs and stagnant wages.

While it may be no surprise that China’s surging tide has failed to equally lift all of its citizens’ incomes, some American pundits still get away with placing the blame for America’s sluggish economy squarely on China while ignoring the similarities between the world’s two largest economies. Using the GINI index, China and America are the 36th and 44th most unequal nations, respectively.

Since China opened up in 1979, it has gone from a hermit kingdom to being the world’s largest exporter. Initially, this relationship brought new opportunities for the Chinese along with cheap goods for Americans, but since that time, income inequality in America and China has increased dramatically. Perhaps we should not be framing the situation in terms of China vs. America; rather, we should be looking at who has benefited in each country from trade and economic liberalization. 

For a long time many economists agreed the “Chimerica” relationship benefited American consumers as well as Chinese workers. Now it seems evident that the benefits of globalization accrue overwhelmingly to a privileged few in both countries. In times of economic malaise, it’s easy for elites to use nationalism as a popular rallying cry. This kind of rhetoric is both misleading and potentially dangerous.  Instead of blaming the rest of the world for catching up to us, we should be making our own investments in education, infrastructure, and other areas that directly impact our future.

Photo Credit: Robert Scoble