Derek Scissors

China More Powerful Than America?

A recent Pew Research survey included a bizarre result: 44 percent of Americans believed China was the world’s top economic power, against only 27 percent picking the United States.

Tough times have made people pessimistic and the media has picked that up and run, to the point of saying the United States is economically subservient to China. But the belief that the United States is economically inferior to China is way off the mark.

Individual wealth is easy. In a very hard 2008, the average American earned about $47,000. The average Chinese citizen earned $3,400. Things in China are generally cheaper so the World Bank multiplies the China number by two and a half. That puts the average Chinese at $8,500. Advantage: the United States, by a country mile.

The pure size of the economies seems like it would be a close call, as China has a billion more people. Plus China has been growing quickly. Yet the American economy is more than three times bigger. In fact, the United States by itself has more than a quarter of the world economy. It has held near that level for 35 years, despite its current problems. That’s about the same as China, India, Japan and the rest of Asia combined. With sounder policies than it is presently following, the United States will be by far the world’s biggest and most powerful economy for a long time.

What the Pew poll is probably tapping into is the widespread idea that China is America’s banker. The Obama administration repeated this early on. The administration has stopped but the press still can’t quite figure things out.

As with many mistakes, it’s based in part on a correct perception: America is running a huge deficit. It has done nothing to help its economy and is a hotbed for corruption. It contributes to economic imbalances within the United States and globally. One of those imbalances is China’s purchases of US bonds, which include $800 billion in Treasuries and several hundred billion in other government bonds. While the US budget deficit is a bad omen for America’s future, the fact that China buys its bonds is not. In fact, it’s an endorsement of its future.

China takes in a great deal of money from the world, through its trade surplus and other things. The same set of rules that keeps the Chinese currency undervalued means Beijing can’t spend its huge pile of foreign cash within China. It physically can’t, by law. Nearly all foreign money must end up right back with the Chinese government.

So what does Beijing do? It certainly isn’t buying US bonds as a favor. It does so because the United States is the only economy large and sound enough to absorb that amount of money. It’s not a loan, it’s an investment. China also ties its currency to the dollar. Linking themselves closely to the US economy that way is the best choice it has right now.

The recession and the deficit are big problems, no question. Still, there’s no doubt at all about who has the world’s most powerful economy. Just ask China.


Derek Scissors, PhD, is a research fellow in Asia economic policy at The Heritage Foundation’s Asian Studies Center.

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