Business World, 22 July 2019


The last task undertaken by the famous economist John Maynard Keynes was to secure a huge bilateral loan (around $50 billion in today’s terms) from the US to help a bankrupt Britain after World War II. The war had devastated the British economy, which until then was still adapted to wartime production, and the loan was badly needed to procure capital equipment and consumer goods and to maintain British military presence throughout its still-vast empire. The strain of the negotiations — the Americans driving a shockingly hard-nosed bargain — contributed to the untimely death of an already-ailing Keynes even before he had turned 63.

That Britain needed to muster (and indirectly cause the death of) its most brilliant economic mind to perform an essentially menial and mendicant function — negotiating a loan with US bureaucrats — was symbolic of Britain’s post-war desperation and its decline as a world power. It was poignant and pathetic but an unmistakable sign that Britain’s time had passed.

Fast-forward to today. Some thoughtful people wonder whether we shall now witness something similar in our lifetime (or our children’s) in relation to the US. Perhaps the time of the US has also passed and it is China’s turn at the helm? Which Nobel Prize-winning US economist will one day also travel to Beijing to plead with mere Chinese bureaucrats not to dump but rather to continue buying US Treasury bonds?

Nothing is certain, of course, and the US is still by no means a dead horse. But enough signs exist to give long-term historians pause. Among these are the growing insularity and protectionism of the US (only exaggerated under Trump), its preoccupation with its domestic fiscal troubles and its race and culture wars, as well as its equivocation over foreign military entanglements (partly also a fiscal problem). These contrast starkly with the confident posture of China, which now styles itself, ironically, as the new champion of “free trade,” globalization, and the multilateral trading system — even as it audaciously projects its economic and strategic influence in many parts of the world. (Hello, West Philippine Sea!) Indeed America’s newfound scrappiness under Trump is itself an admission that the US was on its back foot all along. (Hence the second “A” in MAGA.)

Those who doubt the significance of China’s rise can point to how the US is still the world’s largest economy, China’s GDP being only 65-70 percent that of the US’s. Chinese labor productivity is also only one-fifth that of the US, and US GDP per capita is three and half times that of China’s (in Purchasing Power Parity $ 2018). And finally, not to forget, the US is still by far the world’s preeminent — if increasingly diffident — military power: it has 23 times the number of China’s nuclear warheads; 24 aircraft carriers to China’s one; and 14 nuclear submarines to China’s seven (even neglecting quality differences).

So from this viewpoint — which may well be that of the Trump administration — one might think China’s rise can still be stopped if only one could block the unfair advantages China has thus far enjoyed. These include its easy access to US markets, its industrial espionage and copy-catting of US intellectual property, its burdensome restrictions on foreign investments, and its sporadic exchange-rate manipulation. MAGA indeed!

One is the sheer size of China’s middle class. Decades of rapid growth have resulted in a fact reported by Credit Suisse in 2015: that the number of Chinese individuals with the same net worth as a middle-class American ($50,000-$500,000) had exceeded the latter in number (109 million versus 92 million). But even that is an understatement. If we use a lower global threshold for middle-class net worth, say $10,000-$100,000, we get the results shown in the Table. By this measure, Chinese persons already make up 40% of the world’s adults who are middle class or richer. The US and Europe together constitute less than 30%.

Adult individuals with net worth of $10,000 or more (2018, in thousands)

The significance of this fact cannot be overstated. It is the reason China is already the world’s largest consumer market for everything from smartphones, to washing machines and refrigerators, to automobiles, to air travel. It is even closing in on the US in film box-office revenues — which is why Matt Damon might continue to make bad movies set in China (viz. The Great Wall) and Hollywood can in good conscience produce mindless action flicks with minimal dialogue (Furious 7 earned more in China than in the US).

That last bit is important. Part of US economic pre-eminence is built on a cultural hegemony — pop culture and the aspirational consumer lifestyle are still defined primarily in Western and American terms. When economic hegemony passed from Britain to the US, a cultural and linguistic continuity was nonetheless preserved that created a large market (e.g. witness the back and forth from Chuck Berry to the Beatles to the Monkees). This time is different, however. A US state department official recently described the rivalry with China as “the first time we will have a great power competitor that is not Caucasian” (Whoops!). For its part, China faces the hurdle that it cannot readily hitch its commerce onto the prevailing culture. Chinese is still not cool. So its brand equity must be based solely on price and technology.

It is uncertain how far China’s market dominance will ultimately reshape the world’s cultural norms (or conversely how far the Chinese middle class itself will adopt Western tastes and values). We do know of course that it’s already reshaping politics. But capitalism can and will always adjust itself to the paying customer, and enough money will always go a great way towards changing even the most established norms and cherished values. So there is bound to be some trend in world commercial culture to cater for Chinese tastes and even politics. Facebook, for example, has agreed to develop censorship software just to enter the Chinese market. To suit Chinese tastes, GM is said to have incorporated feng-shui principles, gone overboard on luxury, and used monotone colors (reminiscent of ink-wash painting). As the old German saying goes, Wes Brot ich ess, des Lied ich sing (Whose bread I eat, his song I sing.)

Bottom line for us civilian bystanders who are neither big producers nor big consumers: it’s time to get used to pesky Chinese subtitles in Hollywood films. Or, more culturally ambitious still, maybe it’s time we learned to adorn our prose with lines from Chinese poets instead of Shakespeare or Whitman. Here’s one by the way from Li Bai (701-762) that seems to describe the government’s war on drugs:

When the hunter sets traps only for rabbits, tigers and dragons are left uncaught.


[ Click here for Part 2 ]