The New Red Scare

The New Red Scare

Why you should care

Not everything is made in China, and it will likely stay that way for a while.

If you follow the news, it seems like a foregone conclusion. The American economy sputters and stalls while China’s grows and grows. It is inevitable that, in the very near future, China will overtake the United States as the world’s top economy, right? That’s what most people around the world — and nearly half of Americans — think. A recent survey of 38,000 people from 39 different nations picked China to beat out America in the near future. In only six of those 39 countries did a majority of respondents choose the United States.

Trade Facts

But not so fast, some say. China has grown precipitously, but its gross domestic product is still almost half that of the United States’ GDP. And data shows that China’s economy may be cooling. Growth has accelerated in only two of the last 10 quarters in China. As exports, factory output and retail sales shrink, inflation continues to rise. And headache-inducing Chinese politics have made the nation of 1.3 billion less attractive for major international corporations, like when the state-controlled media badmouthed Starbucks’ prices last month. “The operating environment for foreign firms has deteriorated in the last year in a serious way,” Shaun Rein of the China Market Research Group tells Bloomberg. “In my 16 years in China, it’s some of the worst business sentiment among foreign executives. They don’t feel as welcome as they used to.”

Women in blue uniforms lined up on the left and right in a production line working

Chinese workers sew clothes to be exported to the U.S. and Europe

Source Corbis

And it’s not just that people around the world are too bullish on China’s economy. They may also be underestimating just how massive the U.S. side is. Currently, the top 30 metropolitan areas in the United States, from New York City to Orlando, have a larger combined gross metropolitan product than the entirety of China. That doesn’t even include places like the growing shipping hub of Norfolk-Virginia Beach or the burgeoning tech scene in San Jose, California. Nor does it contain the agricultural production of America’s rural areas.

It isn’t unreasonable to think that China can overtake the United States, but the Asian superpower can’t simply stay the course and keep growing. Currently more than half the Chinese economy depends on investment and government contracts — and too little consumption. While Chinese officials recognize the need to change, reforms aren’t so easily pulled off. That reworking may initially bring about stalled growth, which would likely prove unpopular.

Color photo of man in construction hat and welding glasses welding metal

A Chinese worker processes steel products at a factory

How China moves forward will be much clearer very soon. The nation’s leaders and the heads of the largest state firms and banks have been meeting since Saturday through November 12 to chart the country’s economic course. It was the first plenum, in 1978, that spurred China’s initial growth to where it is today. In this global economy, the whole world should be watching.

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