The Subtle Game Between Two Giants, China and the US

It was 10 years ago in a taxi in Beijing that I realized how big China really is.

I was talking about soccer with the taxi driver in a horrifying mix of English and Chinese, “Baggio…ting hao…very good!” when we entered an enormous highway that seemed to have just opened the day before.

“The fourth ring road,” he told me proudly. “Beijing is the only city in the world with four ring roads.”

Today there are seven beltways in Beijing, asphalt monuments that celebrate modern China’s desire for growth. The country has had its foot on the accelerator for years and the results are remarkable.

China is about to surpass the U.S. and become the leading economy in the world. At least this is what the International Comparison Program, a World Bank project, stated a few weeks ago.

The news caused a stir, especially in China and the U.S.

The ICP is right. We will be faced with a historic moment, a passing of the baton from West to East, which would confirm the decline of the U.S. and the now inexorable rise of China as a super world economy.

However, the numbers are not clear. If we are only looking at GDP, the U.S. economy is worth more or less double than that of China’s (Italy’s is eighth place.) The overtaking is not expected before 2020.

But the ICP and World Bank are trying to measure the “real” dimensions of the world’s economies. Not just the nominal GDP value but also the purchasing power of currencies.

The concept is clear to anyone who has traveled abroad: In developing countries, like China, money “buys” more because goods and services cost less than in first world countries. In this sense — and only in this sense — the ICP stated that China is about to surpass the U.S.

The method is legitimate but the results are debatable. It’s true that in Shanghai one yuan buys more than a dollar in New York, but a country like China needs to use its own currency to import goods from abroad. When they buy war missiles and ships, iPhones and BMWs, the Chinese have to pay the prices international markets dictate.

But even if China is not the only world economic superpower yet, the Chinese dragon is breathing down Uncle Sam’s neck and the Americans feel it.

The way the two countries reacted to the World Bank’s calculations says a lot about the precarious position of the world economy. In the U.S., media and experts have tried to ignore the ICP numbers or to explain why they were wrong. In China the government did the same. The Chinese Istat said that it does not recognize the results as being official statistics and the governmental media organizations have clearly stated that they don’t believe the numbers. It’s a subtle political game between two countries that have a lot to lose in an open confrontation on the economic front.

The U.S. — especially the weak Obama Administration — does not want to hear about a final decline just a few years after a difficult financial crisis and a devastating recession. And China acts classically shrewd: It has no intention of scaring the world nor increasing the expectations of a local population which in general does not see many of the fruits of this breathtaking growth. The truth is that China remains a poor country because it has almost 1.5 billion citizens: the GDP per capita is the 99th in the world, even when taking into account the purchasing power of its currency.

“China is big but not strong,” said Mao Yushi, the guru of the Chinese economy, to the Financial Times. It’s an applicable aphorism to many aspects of the growth of a country that half a century ago was in the dark ages of Mao Zedong.

For now, the U.S. and China are allied in not wanting to change the economic status quo. But it is a fragile peace, destined to be interrupted by the unstoppable trade currents, growth and capital.

China already controls fundamental aspects of the world economy. Its insatiable appetite for primary resources is transforming for the better countries like Australia and Brazil, Mongolia and Angola. The investments of Chinese businesses and banks are helping Africa to fight centuries of oppression and economic problems. There aren’t many parallel storylines to describe China’s impact on the world: a developing country that moves world markets and changes the economic reality of entire continents.

It’s no coincidence that Beijing’s success is causing political tensions, especially with Japan, another declining power that once had regional hegemonic ambitions in Asia.

But it would be a mistake to write off America. Despite the failures of the last few years and a series of leadership crises in the White House and Congress, America has unique resources. And I am not only talking about oil and hydrofracking gas that are giving fuel to a new industrial revolution in parts of the country.

I am talking about the “capitalist energies” of a country that has made renewal its raison d’être. The list of U.S. advantages on the rest of the world is long: from financial markets to the entertainment industry in Hollywood, from the entrepreneurs of technology to the army of immigrants ready to do anything in order to claim a little piece of the American dream.

The influence of the U.S. on the rest of the world is greater, no less than the U.S. economy is in China; in Europe they can think of tackling it in the next few years.

On the economic highway, overtaking is more difficult that on Beijing’s many beltways.