Dear America,
It's been nearly 35 years since your President Nixon stepped off Air-force One and shook Premier Chou En-Lai's hand en route to a celebrated resumption of relations between your young nation and our own nation, as ancient as any civilization on earth but still quite young at core. (Revolution tends to have this effect.)
And all in all the relationship has been a mutually beneficial one. Don't mess it up.
Now, as you know, relations between our two nations have seen some famous
hiccups, sources of ongoing
dispute and of course, who can forget our own recent experience with your so-called
faulty intelligence?
But through it all, China was there to act as a strong and growing partner to America. In fact, without China, it is doubtful that America would have seen the great expansion it has endured over the past two decades. We helped you through what Democrats call the Great Clinton Expansion. How did we do that? By giving your consumers and, increasingly, what is left of your industrial base, cheap substitutes to goods produced in your own country and elsewhere. This eased inflationary pressures in the US, allowing you to pursue more expansionary policy than what the Europeans, for instance, have been able to pursue (though lets be honest, those ECB bankers overdo it quite a bit too).
It also enabled your working classes to almost keep up with their more well-off peers. This, despite long-stagnation in their wages due to institutional neglect of their well-being by your public authorities. How did we help in this? Simple: by clothing them, by providing them household necessities and, in increasing measure, feeding your urban and rural poor for far cheaper than what your own firms charged them when you still had an industrial base in consumer goods to speak of.
Of course, way back then, you were still taking care of your poor, and firms were still paying their workers enough to afford the goods those firms produced (even that fascist bigot Henry Ford understood this) but that was then, and it was over a generation ago now. And while you may blame us to some extent for the loss of that industrial base, we should point out that it didn't have to be this way. Good governments engage in good industrial policy and in monetary policies which help support its industrial base and the well-being of all of its people, and it's hardly China's fault your government doesn't see good governance as part of its duty. And further, while many of you blame China for the "Wal-marting" of America because 90% of their stores are filled with our products, it is hardly the PRC's fault that the Waltons squeeze their customers for every last dime on behalf of the family and its shareholders, and hardly the PRC's fault that Wal-mart has no significant sense of duty to its community or its country. After all, isn't that simply the Corporate American way?
Finally, China has even been good to your Capital classes. Now granted, that isn't our goal, but after all, we have needed, till now, the FDI in order to catch up with the rest of the industrialized world. And we made it as hard as we reasonably could for your shareholding classes to repatriate cash-flow generated in the PRC (those joint-ventures with the People's Army were a brilliant idea!) but, all in all, your investor class is still satisfied with the bets they have made on the future prosperity of the largest consumer market in the world, and that has in no small measure underpinned some of the business confidence in corporate boardrooms across your country and in Europe as well.
In light of this, I do not think we would be respectful partners if we were not to give you some advice. Now, we are well aware that there's good advice, and then there's unwelcome, hypocritical advice of the sort you like to give. I will attempt to limit my observations to the good advice.
The first is for you to begin to get your fiscal house in order. What do you think, we're going to keep buying up your debt forever? Renminbi don't grow on trees, you know, and even if they did, your lot would eat them faster than a Panda eats leaves. Your wealthy people, even those whose patrimony is measured in the mere tens of millions, do not pay enough in taxes, do not contribute to the public good in proportion to their wealth and the benefits they derive from their country, and consume far too conspicuously, in fact on a scale which would be considered sinful for even the wealthiest tycoon in China. Your deficit is structural, and it is due to your upper-classes' inability to see past its own nose and shoulder their rightful burden. (In this, they are not an historical anamoly, by the way, with the resulting imbalances provoked by their distracted neglect usually resulting in the kind of tumult we saw, in two waves, in the first half of the last century.) And your poor are far too poor, relative to that wealth, to be shouldering the burden that your wealthy refuse to shoulder. A progressive tax burden is a fair tax burden, and your tax burden is far from progressive and in fact is slowly devolving back to that of the ancien régime, which ended quite badly in those parts of the world where it has ended.
Second, quit giving us worthless advice about our supposedly frail banking sector, all the theoretically bad loans on their respective balance sheets and how we will never grow into London or Manhattan without transparent and open financial markets. Such thinking assumes we view the world through neo-liberal, capitalist eyes. We don't. The banking system in China is not intended to fulfill the primary role of enabling wealthy people to become wealthier. It is intended to ensure the prosperity of all Chinese through the good offices of the party. For your 411, Deng wasn't kidding when he was talking about socialism with Chinese characteristics, and Jiang Zemin's "Three Represents" is not a departure from this idea, of opening up the economic forces of China to quickly develop an industrial base strong enough to support the prosperity and socialism of all citizens of the PRC. In this, we were late to recognize the imperative nature of rapid development, for in this increasingly globalized world, those nations which do not develop world-beating industial power on their own terms and in due time are susceptible to re-colonization. We remember those British traders and their opium, but we also reckon there is no further risk of a similar recurrence, for China is today strong and growing stronger.
Finally, we are today your principal benefactor in world currency markets, buying USD-denominated debt with nearly as much abandon as you're willing to print the paper it's written on. We'd like to buy more dollar-denominated assets, but apparently you have a bipartisan consensus to make this harder. No worries, there are other assets we can buy, albeit less attractive ones, and at least in the near and medium term, we will likely continue to do so.
Granted, we do this in order to further the growth track we currently pursue in earnest for the betterment of China. Easing the tensions caused by the great rural to urban migration, a migration which caused most of the West to convulse (in 1789, in 1830, in 1871 to name a few periods), is a priority for the party. But do not take this goodwill for granted: we are expanding into more markets, include the EU (which granted engages in competent industrial policy, unlike your government, but nonetheless represents significant opportunities for growth) where nearly all the textiles in the markets of Marseille come from a Chinese factory today, versus virtually none a decade ago.
Without our cooperation, large segments of your population would see a significant decrease in their standard of living, most likely via inflation in basic necessities they consume every day, caused by a stronger renminbi. And we predict, given recent evidence, that neither your government nor the wealthy among your citizens will notice much or give much of a damn. So the risk of damage to social stability cuts both ways: we are not alone in sources motivation for continuing this relationship. But, unlike you, we are the creditor in this relationship.
So here's a toast to nearly four decades of Sino-American relations. It's been a bumpy, but prosperous ride. We'd like to keep it that way. And we'd like you to do your part to keep it that way too..
DISCLAIMER: FICTIONAL LETTER, NOT THE ACTUAL VIEWS OF THE HEAD OF THE PEOPLE'S BANK OF THE PRC..
Crossposted at Eurotrib