If American political candidates have a favorite punching bag, it's China. Wonkblog's Ana Swanson explains why so many candidates change their tune once elected, and just how important the U.S.-China relationship really is. (Jorge Ribas/The Washington Post)

The United States is rolling out the red carpet this week for the leader of the world’s most populous country. Chinese President Xi Jinping will first visit with tech executives and other industry leaders in Seattle, then head to Washington to meet with President Obama.

The meeting is a touchstone moment in an increasingly tumultuous relationship. The Obama administration has been preparing sanctions against China following a wave of cyber-espionage from Chinese hackers. And China has sparked the ire of U.S. businesses and politicians by devaluing its currency and favoring Chinese businesses over foreign ones.

Despite the tension, China remains one of the most important countries in the world for Americans. China is so big and fast-changing that its actions ripple around the world and influence life for average Americans — determining the price of things we buy, influencing what we make at our jobs, even changing the quality of the air we breathe.

But maybe because of its size, or its distance, or its complexity, it can be hard to grasp exactly why China matters. Here are seven questions — and answers — that will bring you up to speed on the state of China, and America's relationship with it.

1. Why does China matter? | 2. Is China still a poor country, or is it rich and powerful? | 3. What do the Chinese really want? | 4. Is China still communist? | 5. Is China's economy in trouble? | 6. Will China surpass the U.S. as the world's superpower? | 7. Should the U.S. view China as a threat or an opportunity?

 

1. Why does China matter?

For America, China is arguably the most important country in the world.

One reason is that China is just really, really big. One in five of all the people on the Earth lives in China. It’s the world’s second-largest economy after the U.S., accounting for about 12 percent of the world economy and about a quarter of global growth in recent years. It is America’s second-largest trading partner.

China is also important because its incredible pace of growth in recent years is transforming not just the lives of its own people, but also of people all around the world.

One of the main ways China influences other countries is through trade and business ties. China has long been known as the factory to the world, pumping out a disproportionate share of the world's iPhones, clothing, shrimp and Christmas decorations.

The influx of cheap Chinese imports has helped some Americans and hurt others. It has raised standards of living for many Americans, allowing them to afford all kinds of things they couldn't have purchased before. It has also supported American jobs in fields like transportation, retail, construction and finance.

But it has meant a loss of jobs in manufacturing. The share of Americans working in manufacturing fell from more than 13 percent in the late 1980s to 8.4 percent in 2007, as trade with China increased and its imports into the U.S. soared, as this graph shows:


The China Syndrome: Local Labor Market Effects
of Import Competition in the United States, http://economics.mit.edu/files/6613

The lesser-known side of the story is that China is also now a major consumer of U.S. goods. About one-quarter of the soybeans grown in the U.S. go to China, as well as one in five of planes manufactured by Boeing. Apple now sells more iPhones in China than in the U.S. China is also a big consumer of American services, like education: One in three foreign students in the U.S. is now from China.

No matter what kind of business you look at, China probably affects it, says Scott Kennedy, deputy director of the Freeman Chair in China Studies at the Center for Strategic and International Studies, a Washington think tank. “Even if you’re not doing business in China, you’re most likely facing some kind of Chinese competition, or China’s effect on the global economy affects your sector.”

Another way China is reshaping the world is through its voracious appetite for resources, to feed its factories and build new roads and cities. China accounts for about half of the aluminum, copper, nickel, steel and concrete used worldwide each year, making it a major customer for resource-rich countries like Australia and Brazil.


Visual Capitalist, http://www.visualcapitalist.com/china-consumes-mind-boggling-amounts-of-raw-materials-chart/

China's appetite for resources is so big that the country actually used more concrete in the last three years than the U.S. did in the entire 20th century. (This animation, which shows how Shanghai transformed from 1987 to 2013, helps explain how that might be possible.)


1987 (Reuters); July 31, 2013. (Carlos Barria/Reuters)

China is important to the U.S. for security reasons, too. China is now the dominant power in East Asia, a region with close U.S. allies and vital shipping lanes.

China and the U.S. have some serious conflicts, for example over cyber attacks on government and business secrets, and China’s clashes with its neighbors over territory in the East China Sea and South China Sea. But the U.S. and China cooperate on issues like climate change and counter-terrorism, and China has supported U.S. led efforts to contain North Korea's and Iran's nuclear programs.

 

2. Is China still a poor country, or is it rich and powerful?

China, on the whole, is certainly a powerful country — able to forge new trade agreements, launch new international institutions, and send probes into space. But on an individual level, its people are not that rich — at least not yet.

In fact, the average American earned more than four times as much as the average Chinese person did in 2013, making $53,000 vs. $11,885. (This is on a purchasing power parity basis, which actually makes those in poorer countries seem relatively richer, since it accounts for the cheaper cost of many goods and services in poorer countries.)

Those income levels might seem low for an American, but for the Chinese they are actually a huge improvement. Back in 2000, an average American was earning 13 times as much as the average Chinese; in 1980, the difference was 42 times.

In the 1970s, average Chinese aspired to buy what were called the “four musts”: a bicycle, a radio, a wristwatch and a sewing machine. By the 1980s, that list included a washing machine and a television, and today people aspire to afford cars and international vacations.

This growth in incomes over the past 40 years has lifted 500 million people in China out of poverty. The Chinese are becoming a true middle class in a global sense, earning more than India, Africa and much of the Asia-Pacific but less than Europe and the U.S., as the graph below shows. The chart shows global wealth broken down by decile, or every 10 percent of the world wealth distribution.


Credit Suisse 2014 Global Wealth report, https://publications.credit-suisse.com/tasks/render/file/?fileID=60931FDE-A2D2-F568-B041B58C5EA591A4

But of course, averaging things obscures the real situation for a lot of people. China is now one of the world’s more unequal countries. Much of the wealth – and the country’s new crop of millionaires – is concentrated on the eastern coast, while in China’s interior hundreds of millions of people are still basically subsistence farmers.

Here's a map that shows how that wealth is concentrated. The darker blue areas along the coast are the cities of Beijing and Tianjin in the north, and the city of Shanghai in the middle, where average incomes are more than three times as much as the interior:


"GDP per capita of Chinese provinces" by cncs - Licensed under Public Domain via Commons

Looking at China from the U.S., what we see most is China’s impressive economic growth and expanding international influence. We rarely see the reality on the ground — that internally, China faces many challenges and quite a bit of disorder.

China faces a whole host of problems that go along with being a rapidly developing and a relatively poor country. For example, China struggles to provide the public services that Americans take for granted, like public education for all, safe drinking water, and decent medical care. And while the Chinese government may seem all-powerful, its influence only goes so far. Many people still evade income or real estate taxes with impunity, while many businesses shirk government regulations.

 

3. What do the Chinese really want?

The simple answer is “a lot of different things,” because there isn’t just one China. China can often seem monolithic from the outside, but internally it’s a diverse country where people have lots of different opinions, even if they can’t act on them politically.

When it comes to China’s leaders, it’s safe to say they want what any government around the world wants: to stay in power.


President Obama with Chinese President Xi Jinping in Beijing. (Andy Wong/AP)

In practice, that has meant delivering economic growth and raising standards of living. For China's current leader, Xi Jinping, it has also meant stamping out corruption, which many people believe was eroding the party's popularity. Since entering office 2½ years ago, Xi has launched an extensive crackdown on corruption, investigating tens of thousands of Chinese — including Xi's own political enemies.

China has become more assertive overseas and repressive at home under Xi's authority. It's clear that he, and many other Chinese as well, want their country to be restored to what they see as its rightful position as one of the world's great powers — a broad goal of national rejuvenation that Xi has coined "the Chinese dream."

Americans tend to think of China’s rise as happening in the past few decades, but many Chinese have a longer memory. China has one of the world’s oldest civilizations. To those with a long view of history, China's position as a relatively poor country in the early 20th century is the aberration, following thousands of years when the country was without question one of the world's great powers. The chart below shows just how dominant China's economy has been for the last 2,000 years:


Michael Cembalest, JP Morgan

In fact, Chinese call the period of history between 1839, when China lost parts of its territory to foreign countries in the first Opium War, and 1949, when the Communist revolution occurred, “The Century of Humiliation.” This memory of humiliation at the hands of foreign powers often goes hand-in-hand in China with nationalism and anti-foreign sentiment.

So restoring China's international luster is a priority of the government and regular people alike. However, most Chinese are still far more concerned with everyday challenges, like housing prices and job opportunities.

For most people, scandals that impact daily life — like villages with soaring cancer rates, or tainted infant formula — are more keenly felt than political issues. In fact, when Chinese gather to protest, the cause is often pollution, working conditions or real estate prices.

 

4. Is China still communist?

For a country that nominally follows communism, China has a lot of Ferraris. That's because the Chinese economic system has changed dramatically since communism — the philosophy spawned by Karl Marx which argues that workers should collectively own the means of production, like factories, property and machines — first took over the country.

The People's Republic of China was founded in 1949 after several decades of bloody conflict between the Communist Party of China and a group called the Nationalists. After the communists finally won, the Nationalists fled to Taiwan and founded the Republic of China, which the U.S. supported as the legitimate Chinese government for decades.

Under its new leader, Mao Zedong, China closed itself off to the West and dramatically reorganized its society. Workers initially lived in communes organized around farms or factories. People didn't use money to buy things, but were given rations of food and other small necessities. The state determined what jobs people did, what they ate, even what songs they sang:

Mao ruled China for a quarter of a century. While he helped modernize China in some ways — educating women, and establishing a basic system of public health, for example — he also presided over some ghastly moments in history, including a famine that may have killed 36 million to 45 million people. The official line in China is still that Mao was 70 percent correct and 30 percent wrong.

In the late 1970s, Mao died. A man named Deng Xiaoping (“xiao” is pronounced like the first syllable in “shower”) took over and began opening up China to the outside world.

Deng believed strongly in the communist party, but he was also a pragmatist who wanted to lift China out of poverty. He famously said, “It doesn't matter whether a cat is white or black, as long as it catches mice” – in other words, that China could adopt any system that worked, be it communist or capitalist. He also coined the phrase that has basically become China’s mission statement: “To get rich is glorious!”


Chinese leader Deng Xiaoping tries on a cowboy hat, a symbol of the U.S., at a rodeo in Simonton, Tex., in 1979. (AP)

To help people get rich, Deng began allowing foreign investment in China’s coastal areas, and loosened restrictions on the kinds of things people could buy and sell, and the types of jobs they could do. Chinese agriculture boomed as farmers were rewarded for their sales, village collectives began manufacturing TVs and other appliances, and foreign-funded factories cropped along China's coast.

China changed and opened up a lot, but the old rules were altered piece by piece, rather than being fully abandoned. That’s why the country today is still a bewildering mix of capitalist free markets in some parts of the economy and tight state control in others.

There are some vestiges of communism in China that Westerners find perplexing. For example, the party actually owns all the land in China. Rural farmers can't sell their land, because farmland is technically owned by everyone. And when city dwellers “buy” apartments, they are technically only leasing them from the government for 70 years.

But while China is, in practice, mostly capitalist, the Communist Party still rules all.

The party is ultimately in control of the government, the military and many businesses. Most importantly, the party is in charge of appointing almost every important person to their position, including government ministers, CEOs, university presidents and newspaper publishers. It is also in charge of deciding who gets promoted in the party itself.

About 6 percent of Chinese people are members of the Communist Party — a group of 86 million that includes almost all government officials, business leaders and other social elite. Most government officials have a position both within the party and the government. For example, when China’s leader, Xi Jinping, comes to the U.S. he will use his government title of president, because that’s more familiar to Americans. But in China, his most important position is general secretary of the Communist Party.

China has promised to open up more of its markets to foreign competition, but don’t expect it to adopt a Western system anytime soon. In the nearly three years that Xi Jinping has been in power, he has strengthened his and the party’s control over Chinese politics, business and the law.

 

5. Is China's economy in trouble?

You may have heard recently that the Chinese economy has some problems. That's true, but it also still has a lot of potential.

China’s growth is slowing down. Following decades of double-digit growth, China’s economic growth slowed to 7.7 percent last year, and shows signs of decelerating further. This has countries around the world worried, especially countries that export a lot of resources to China, like Australia or Brazil. But for China, the growth slowdown is not, in itself, necessarily a bad thing.

For one thing, slowing down is pretty natural after so many years of rapid growth. China’s growth has been, in every sense, extraordinary. The country experienced an eight-fold increase in living standards in 30 years – an increase that took the U.S. 122 years and Japan about 80. As economist Barry Naughton puts it, China’s growth is slowing in part because it has graduated early.

As China’s economy has developed, the wages its workers earn have risen, too. This is great for average Chinese — it means they can afford better food, houses, cars and health care — but it also means that low-cost manufacturing jobs are tending to leave China for lower-cost countries like Vietnam, Bangladesh, even Mexico. China has also exhausted most of what economists call “catch-up” growth from acquiring the technologies of more advanced markets. As countries catch up and get richer, their growth just tends to slow.

The problem is where China chooses to go from here. The country needs to develop new sources of growth that are consistent with being a wealthier country, with a more skilled and higher paid workforce. But China's progress toward this goal is uneven and uncertain. China wants to keep its population fully employed. But instead of putting energy into finding new sources of growth for the economy, the government has often turned to wasteful and heavy-handed methods for propping up growth.

For example, as China’s exports to the world slowed with the global financial crisis, the country shifted to pumping a lot of money into investment in infrastructure, housing and manufacturing capacity to prop up growth. Many of those investments were useful and profitable, but others were not, and as time went on, they became less so. China built bridges to nowhere, stadiums that stand empty, and its infamous "ghost cities" — newly built cities with no one living in them. In a country where many people are still relatively poor, many of these investments were a tragic waste of money.

In the short term this kind of activity is recorded as economic growth, but in the long run it is obviously wasteful. These activities have caused the debt owned by the government, banks, corporations and households to balloon to 282 percent the size of the economy, a far higher debt burden than most developing countries, as well as Australia, the U.S., Germany or Canada, as the graph below shows. An unknown amount of these loans will probably never be paid back.


McKinsey and Company, http://www.mckinsey.com/insights/economic_studies/debt_and_not_much_deleveraging

Instead of continuing to pump money into infrastructure, China needs to find new sources of growth that are consistent with being a wealthier country. That entails opening up new parts of the economy to private companies to create jobs that require more skills and offer higher pay, like those involving the service sector, entrepreneurship and innovation.

There are certain changes that China could make to jump-start growth. It could, for example, allow rural farmers to buy and sell their own land, or open up sectors dominated by one or a few state owned companies, like telecom, to new competitors.

In 2013, China’s top leaders made a high-level pledge to “let the market play a decisive role,” a change that would help the country’s economy shift in this kind of direction. However, these reforms mostly have yet to be realized. People are worried about whether China can pull off this economic transition in the future, and those concerns have contributed to a volatile stock market and a lot of money flowing out of the country.

China faces other challenges. For one, its population is aging rapidly, in part due to a policy that limited Chinese parents to having only one child. That means that a smaller population of working people will soon have to support a huge numbers of retirees, as well as themselves, a dynamic that could sink the economy. For many years, economists have been asking, “Will China get old before it gets rich?” The answer is still not clear.

 

6. Will China surpass the U.S. as the world's superpower?

Recent polls show Americans are very worried about Chinese cyberattacks, its growing military power, and the amount of American debt it holds — though actually, the Fed holds a lot more U.S. debt than China and Japan do.


Pew Global, http://www.pewglobal.org/2015/09/09/americans-concerns-about-china-economics-cyberattacks-human-rights-top-the-list/problems-battery-by-u-s-party/

Interestingly, many Americans appear to believe that China is already the world's superpower. But this isn't true, and it seems unlikely to happen any time soon.

The U.S. is still, by almost every measure, the world’s superpower, wielding much more military might, economic power, and influence over other countries than China has. We may be gradually moving toward a bipolar world where the U.S. and China share that distinction equally, but we’re not quite there yet.

"I think the reality is that China is not nearly as strong as it wants to be perceived and as many U.S. analysts like to play them up," says Rodger Baker, the vice president of analysis at Stratfor, a geopolitical intelligence and advisory firm.

What is clear is that China has become a strong regional power, able to hold its own against the U.S. in East Asia. This continues to be an area of conflict. The U.S. wants to remain centrally involved in Asia, but China wants to control its own region and prevent the U.S. from being able to contain it, says Baker.

In the South China Sea and East China Sea, where China claims as its own territory waters that are also claimed by U.S. allies, including South Korea, Japan and the Philippines, China is trying to keep the U.S. from intervening so close to its territory, says Baker. "It’s not on the global scale that China would be a challenge to the U.S., but certainly in the waters around the South China Sea and East China Sea," he said.

 

7. Should the U.S. view China as a threat or an opportunity?

The U.S.-China relationship is broad, deep and complex, with tons of ties between our countries, including business partnerships, study abroad programs, co-produced moviesmilitary exercisescounter-terrorism efforts, and joint studies of disease.

Some parts of the U.S.-China relationship are troubled and adversarial — for example, it's not yet clear how the countries will handle rising tensions over hacking attacks and the looming threat of cyber warfare, or territorial disputes in the South and East China Sea.

The countries have some significant economic disputes. U.S. politicians decried China's recent devaluation of its currency — though China claimed the move was actually directed at reforming the way it manages its currency, in line with international recommendations. The U.S. business community protests that the playing field in China for local and foreign businesses is far from even, and some have begun pushing for the idea of reciprocity — that when China bans a U.S. business, the U.S. should begin banning Chinese businesses, too.

The U.S. and China also have significant ideological differences that make the relationship hard to navigate. China’s tight state control on religion, the press and democracy rankle Americans. These conflicts have only gotten worse under Xi Jinping, who has led prosecutions of lawyersjournalistsNGO workers and foreign business people for failing to fall in line.

The idea that the political system in China, the second-largest economy in the world and the most populous country in the world, "is moving in a direction that is so antithetical to American values is a scary thought," says Kenneth Lieberthal, a senior fellow at the Brookings Institution.

Overall, the countries have basic conflict over the how much a government should interfere in a society, says Kennedy of CSIS. "China gives the state an enormous degree of latitude and discretion and a right to intervene on any question in any time. For the U.S., that right of intervention is constrained with rights that members of society have and external sources of accountability against the state."

But at the same time, however, there isn’t as much ideological distance between China and the U.S. as, for example, the U.S. once had with the Soviet Union. China has mostly embraced capitalism and many U.S. companies. With a few exceptions, it has mostly participated in and supported the international institutions created by the U.S. and Europe.

And the U.S.-China relationship also brings substantial benefits to the U.S., both economically and strategically.

China has supported the U.S. efforts on nuclear non-proliferation in Iran and North Korea. The countries have cooperated on counter-terrorism efforts in the Middle East and Central Asia, and fighting pirates off the coast of Africa. China assisted the U.S. with the Ebola outbreak in Africa.

The countries have forged new agreements on climate change. China is an essential partner in this: China uses almost as much coal as the rest of the world combined, and it recently surpassed the U.S. as the world's largest carbon emitter.

The economies are so tied through investment, debt, business deals and trade that they may very well rise or sink together. On the economic side, China is now investing more money in the U.S. than the U.S. is in China. Given all of these ties, it’s in the U.S. interest to work with China, at least sometimes, as a close partner.

Big global issues and regional issues becomemore manageable when the U.S. and China actively cooperate or at least work in parallel, and become less manageable and far more dangerous if the U.S. and China do not cooperate,” says Lieberthal of Brookings. “While the record is mixed, on things like counter-terrorism, climate and global health issues, the cooperation exceeds the competition.”

This post has been updated. 

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