Opportunity Meets Competition - The US and China
By: S. Rowan Wolf, Ph.D., Uncommon Thought Journal
October 2, 2004 This work is under a fair use Creative Commons License

In my lifetime China has held an array of conceptual niches. China has gone from potential communist threat, to the largest potential consumer market on the planet, to a favored partner with the US. Very soon the business possibilities of China are going to run headlong into the resource control plans of the US. This should be interesting for the United States, but particularly for Bush and the neocons should they stay in power. On one hand, the Bush administration is the most oil intensive leadership the US has ever had in office. On the other, it is the most business "friendly" of any administration that has held office. Good relationships with China are seen as necessary for business to exploit the consumer potential of China - including the profits of feeding its oil appetite. On the other hand, oil reserves are dropping dramatically and China is increasingly a direct competitor for that (and other) natural resource(s). The other side of the Bush administration policy is US control of all critical resources on the planet (and off it).

Being even marginally aware of this issue, it is not surprising that Bush highlighted the importance of China in relationship to North Korea in the first Presidential Debate (transcript). However, a marginal understanding of the complex relationship between China and the US makes certain headlines jump out in neon lights.

Let's start with the fact that China is holding a significant portion of the current massive US debt. According to a report by John Tanner published on the website of the House Democratic Whip Steny Hoyer titled Foreign Countries buy U.S. debt, benefit from our fiscal irresponsibility (pdf):
According to the Treasury Department, major foreign holdings of U.S. Treasury securities total $1.38 trillion. Over the first seven months of 2003, Mainland China and Hong Kong have accumulated $177 billion of U.S. debt. Currently, China is the world's second largest buyer, exceeded only by Japan. Furthermore, China's purchases of U.S. government securities rose 20% over the first half of this year and have exploded by more than 105% since the beginning of 2001.


Knowing that China is holding a tremendous amount of US debt, and is also serving as a primary goods manufacturer for the US gives China significant leverage in US - China relations. China has pegged its currency to the US dollar. This means that the cost of goods from China to the US are less, and that the exports from the US to China bring less revenue to US exporters. It also means that the interest on the US debt being held by China is accruing at US dollar rates. Therefore the news that the I.M.F. is asking China to free its currency from the dollar does not come as a shock. Please do not think that the International Monetary Fund is acting magnanimously to "help out" the US in its time of need. The US holds more votes in the US than any other nation with 17.14% (see table at end of this article). In other words, what the US wants the US generally gets out of the IMF.

China is growing rapidly as an industrial nation. The US is a major importer of manufactured goods from China, and workers in China have replaced hundreds of thousands (if not millions) of US workers. One of the major areas of growth in China has been in oil consumption, and this has skyrocketed in the last two years. In fact, China is now second only to the US in oil consumption. According to John Makin at the American Enterprise Institute, China's oil imports have increased by 35% from 2003-2004 and that represents 40% of the total increase in oil consumption in the world during that same period. While most of China's jump in oil consumption is because of the dramatic increase in the number of cars (National Geographic, 6/28/04), a significant portion is tied directly to the plastics industry (Daily Times/Pakistan) which is critical in manufacturing.

Given these combining forces, it is therefore not too surprising that China has been invited to meet with the G7. Nor is it surprising that two of the major issues on the G7 table are China's currency issue and that the G7 is looking for an increase in OPEC oil production. (It should be noted that the G7 is supposedly now the G8 as Russia was added during the war in Kosovo.)

There are many implications of the change in China's status. There are policy implications which leaves the US government somewhere between beholden to and desirous of a positive relationship with China. There are local and global environmental implications of the rapid growth and resource consumption which is moving rapidly towards US levels. Though China's resource consumption and overall pollution impact rank far behind the US, at the current rate of increase it could pass the US in the next 10 to 15 years. (There is an excellent article on this - Forget the Threat of Terrorism.) Then, there are global resource competition issues and the US policy of taking any means necessary to control those resources. Hence, we have China (and Asia in general) intimately interested in Afghanistan and the hope of a natural gas pipeline from Russia to South Asia. We have China deeply interested in the events in Iraq and its potential oil production capabilities. US military engagement in both Afghanistan and Iraq show the competing interests and policies. On one hand the drive of profit to develop access these energy reserves, and on the other to make sure they are firmly in US control. The plan (at least in relationship to China in this area) is to make as much profit as possible feeding the burgeoning demand of China, but maintaining the leverage of the US controlling the spigot.

It remains to be seen if such a mixed policy will balance out the increasing economic leverage China has over the US.

Sources and Resources
8/2004 John Makin, AEI, Oil and Stagflation

6/28/04 Brian Handwerk, National Geographic, China's Car Boom Tests Safety, Pollution Practices

Daily Times of Pakistan, Local plastic usage among the lowest in the world

10/02/04 Paul Blustein, Wa. Post, China at G-7 Meeting for First Time

10/02/04 BBC, G7 seeks boost in oil production

Oil Consumption of the Top 100 Countries. Nationmaster Statistics Site.

7/25/04 Kenny Kemp, Sunday Herald/Scotland, Forget the Threat of Terrorism. China is about to flick the switch on a global energy crisis and a time bomb that will bring massive destruction worldwide


Percentage of Votes Held in the IMF by those Nations with More than 1% of Votes
Nation
 % of Vote
 Nation
 % of Vote
US
 17.14
 Netherlands 2.39
Japan
 6.15
 Belgium 2.13
Germany
 6.01
 India
 1.93
UK
 4.96
 Australia
 1.5
France
 4.96
 Spain
 1.42
Italy
 3.26
 Brazil 1.41
Saudi Arabia
 3.23
 Mexico
 1.20
Canada
 2.95
 Switzerland
 1.16
China
 2.95
 Sweden
 1.12
Russia
 2.75

Taken from IMF Members' Quotas and Voting Power, and IMF Board of Governors Last updated 9/29/04.