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U.S. v China

Ted Vaill: Some say China has overbuilt in recent years, and is headed for a real estate crash, but others say this is nonsense. We will see…

It was 1981, six years after the destructive ten year Cultural Revolution ended in China, and I was in Chengdu, helping to lead a trekking group preparing to go to the Siguniang Mountains, one of the nine mountainous areas of China and Tibet suddenly opened for trekkers and mountaineers by the Chinese Communist government after being closed to foreigners for almost 40 years. The Gang of Four, including Mao Zedong's wife, had recently been tried and sentenced to death. China was changing.


I was staying at the Soviet-style Jin Jiang Hotel, and I got word that a group of people outside the hotel wanted to “practice their English” and meet Westerners, so I went outside the hotel to talk with them, dodging the “ching-ching” of the thousands of bicycles which clogged the streets. Wearing Mao jackets and unisex hairdos, they were intensely interested in meeting their first American ever. We had a friendly discussion until one man, obviously there to stir up trouble, pointed at me and in a nasty voice asked “I understand you have drugs, violence and sex movies in the United States”. I looked at him sharply and replied “You are correct”, to which the crowd surrounding me gasped, “but you have violence too in the People's Republic of China, drugs are illegal but available if you want them in the U.S., and you have the FREEDOM (emphasized) to watch sex movies in the U.S. if you want to.” Clearly some in my audience did.

I was again in China in May, 1989, in Beijing representing an American partner in a coal mine joint venture with the Chinese government, teaching them how to be capitalists. The students were demonstrating for a more free society, in a good-hearted fashion, in Tien An Mien Square, near our offices, but this did not interrupt our work much, although it was difficult to get through the Square. Shortly after I left Beijing, the Chinese government cracked down on the students, killing perhaps 2,000 of them on June 4, 1989, an event seen around the world. The windows of our offices, with our people in them, were shot out by the People's Liberation Army.

Fast forward to 2010. I have just returned from my 17th trip to China over the past 30 years, for business and pleasure, and in this time China has changed more than any country on earth. In the urban areas at least, the “ching-ching” of bicycles have been replaced by luxury Western vehicles and people wearing Western clothing and, for the women, makeup. However, in city after city, from Chongqing to Wuhan to Nanjing to Shanghai, there was one common factor: smog. They assured me that it was just “fog and mist”, but living in LA for 40+ years, I know smog when I see (and smell) it. And much of northern China is even more polluted than the south. This problem will have to be dealt with, soon.

China has the world's largest population, which should reach over 1.4 billion when the next census is finished, starting November 1, 2010. When the founder of the Chinese Republic, Sun Yat-sen, died in 1925, China had just under 400 million people; by 1953, the population had reached 582 million; by 1982, a billion; and by 2000, 1.2 billion people. And this is with China's “one child only” policy, in effect for the past thirty years, which has resulted in a significant overhang of males to females in China (43 million more males under age 65 than females). The population of the largest Chinese metropolitan areas is staggering: Chongqing, 32 million; Shanghai, 20 million; Beijing, 18 million; Guangzhou (Canton), 15 million; Shenzhen, 13 million; Chengdu, 12 million; Tianjian, 12 million; Harbin, 10 million; and Wuhan, 9 million. China has 160 cities with populations of over one million people.

With the population of the United States only 22% of that in China, the future economic and political clash of these two world population leaders (along with India) is inevitable. China is the largest holder of American debt, at about $847 trillion, and could bankrupt the U.S. if it chose to pull the plug on this investment. But realistically it could not do so, as the Chinese return on investment would be destroyed, as well as the major market for Chinese goods. So in addition to any nuclear deterrence, there is an economic deterrence to changing the status quo between these two superpowers.

China's leadership after Mao Zedong has been interesting: Mao died in 1976, and after several years of political infighting, Deng Xiaoping emerged as the leader in 1978 and began the process of modernizing China and opening it up to capitalist business ventures. Following Deng was Jiang Zemin, of China's “Shanghai Gang”, and then in 2002, engineers Hu Jintao and Wen Jiabao took over. They have brought China firmly into the capitalist world, albeit with a strong one party system still in place.

At the Chinese Communist Party's Central Military Commission meeting, held every five years, which just ended in mid-October, 57-year-old Xi Jinping was named to head the fifth generation of Chinese leadership, due to take over in 2012. Xi is a “princeling”, the son of Xi Zhongxun, vice premier from 1959-1962, a close ally of Deng Xiaoping. From 1969 to 1975, during the Cultural Revolution, he was banished to a remote village in Shaanxi Province to cut hay, reap wheat and shepard animals, while trying to continue his education at night, reading by a dim kerosene lamp. He later got a degree in chemical engineering and a doctorate in law, has military experience, and has close ties to the “Shanghai Gang”. Last year, on a visit to Mexico, he told a group of overseas Chinese, regarding foreigners who point fingers at China: “China does not export revolution, hunger, poverty, nor does China cause you any headaches. Just what else do you want?”. Perhaps some political freedom of speech?

Chinese cities specialize in making cheap products used around the world: Huangzi makes toothbrush bristles; Zhangqi, cheap cigarette lighters; Shengzhou, neckties; Wenling, shoes; Chendian, bra straps; Qiaotou, buttons and zippers (China now has 80% of the world's zipper market); and so on. Aside from providing the world with incredibly cheap products, due to the inexpensive labor force in China and the Chinese government's holding the value of its currency, the yuan, at an artificially low level, this domination of the world's markets for cheap products has had the effect of driving out all competition. China has learned how to operate under a capitalist system all too well.
In fact, one of Premier Wen Jiabao's favorite books was written by Adam Smith.

China has invested heavily in infrastructure, building many new bridges and dams (the Three Gorges Dam, the world's largest, is amazing), bullet trains between major cities (I have ridden Shanghai's maglev train, which rides on a magnetic cushion at 265 mph), as well as doubling the number of colleges in China, so that the number of college students in China has gone from one million in 1997 to 5.5 million in 2007. It even has its own version of the Ivy League, its nine top universities. Ultimately this will result in China entering the market producing higher quality goods. China has now become the second largest country in the world in terms of its GDP (the U.S. is first by quite a bit), but some U.S. economists predict that by 2040 China will have the largest economy in the world by far.

Shanghai will one day surpass New York City as the world's greatest city. It has embarked on a skyscraper building spree over the past ten years, capped in August, 2008 by the completion of the 1,614.2 ft. Shanghai World Financial Center, the third tallest building in the world. It features a strange oblong hole near the top, making it look like the world's largest bottle opener. It has a bustling nightlife, and is the financial center of China, and perhaps all of Asia. I visited the 2010 World Expo Shanghai, which just ended, and it was an amazing experience, with the distinctive Chinese pavilion clearly the most prominent. The United States pavilion was undistinguished, inside and out.

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Taiwan and China have had an uneasy relationship ever since Chiang Kai-shek and his Kuomintang (KMT) escaped to the island in 1949 after being defeated by Mao and the Communists on the mainland. However, in a recent development, the KMT government in Taiwan has held out the olive branch to China, and after many years of acrimony, may be coming closer together. Taiwan residents and businesses long ago decided that these political differences were ridiculous, and there is much Taiwan business investment in China, as well as tourism. Within the past two years, Taiwan also opened its borders to mainland Chinese tourists, and 10,000 a month are arriving.

China and the United States have had a love/hate relationship for centuries:

  • In the 19th Century, America, Britain and other world powers forced China to give them concessions along the Yangtze River, and Britain took over Hong Kong. America also imported coolies from China to help build the transcontinental railroads, and then prevented them from becoming citizens and property owners.
  • In the 20th Century, discrimination against Chinese immigrants continued in the U.S. until World War II, when China was allied with the U.S. against Japan. After that war, following Mao's takeover of China in 1949 and China's entry into the Korean War in 1950 on North Korea's side, relations became strained, and this continued through the insanities of China's Cultural Revolution from 1966-1976 until Richard Nixon and later Deng Xiaoping began the process of easing tensions between these two superpowers.
  • In the 21st Century, political tensions have eased, with occasional hiccups like the Chinese seizing of an American military plane in 2001, China's support of various totalitarian regimes around the world, such as North Korea and Iran, its huge balance of trade surplus with the U.S., and its currency manipulations to keep China's exports cheap around the world. China's rate of growth in the third quarter of 2010 expanded by 9.6% compared to third quarter 2009, a slowdown from the 10.3% growth rate in the second quarter of 2010, and 11.9% in the first quarter. Inflation edged up to 3.6% in September, causing Chinese authorities to raise interest rates by 0.25% in mid-October, the first interest rate rise in nearly three years.

What does this say about the future? Some say China has overbuilt in recent years, and is headed for a real estate crash, but others say this is nonsense. We will see…

What we would like China to do in the coming years is the following:

  • revalue its currency to reflect market conditions;
  • improve human rights in China and where it has influence;
  • help ensure the world's energy security;
  • help ensure the world's financial stability; and
  • stop favoring it's own companies and businesses.

Whether China will do any of this remains to be seen.

ted vaill

Ted Vaill

Ted Vaill is an elected Delegate to the California Democratic Convention and a lawyer who has practiced law in Los Angeles for over 40 years. He is also a filmmaker, whose latest effort, available on YouTube, is “Where's Sarah?”, involving his search in Alaska for Sarah Palin.