Two countries, one economy. Welcome to 'Chimerica'
This is the “Superfusion” world of Chinese dollars, American yuan and a solitary economic beast you never saw coming.
China and the United States are not fierce economic competitors and tentative allies. In fact, in economic terms they are not two ‘countries’ at all, but rather a single, unified behemoth called ‘Chimerica.’
That, anyway, is the counterintuitive opinion of “Wall Street Journal” contributor and New York-based economist and global financial consultant Zachary Karabell.
Karabell’s new book, “Superfusion: How China and America Became One Economy and Why the World’s Prosperity Depends on It,” outlines the emergence of a singular mega-economy that “is hiding in plain sight, unrecognized, unacknowledged, and unwanted” by “many millions whose lives are being reshaped by it.”
On the eve of the publication of “Superfusion,” Karabell spoke with CNNGo about China’s relationships with Japan and India, where America still holds an economic advantage and the fears that keep Chinese central planners awake at night.
CNNGo: You don’t subscribe to the us-versus-them paradigm that defines so much China-U.S. analysis. What makes you so bullish about ‘Chimerica’?
The economic convergence of China and the United States is a reality, whether we like it or not. Being positive or negative doesn’t alter the reality of what has happened.
There can be little question that without Chinese reserves bolstering U.S. Treasury bonds in the past 18 months, it would have been far more challenging for the United States government to rescue a crumbling financial system. And without American consumers having bought Chinese goods over the past years, China would never have accumulated the reserves that allowed it to spend hundreds of billions of dollars to support the economy during the worst of the financial implosion.
CNNGo: When do China’s vast reserves of U.S. currency become a noose around its neck?
China may want to become less dependent on the U.S. dollar, but until there is an alternative, it has no choice. And it is not so simple to create an alternative currency of last resort for the global economy.
For its part, the U.S. economy needs to remain vibrant and innovative in order for the dollar to remain vital long-term. As long as the United States is a leader of ideas, new products and innovative techniques, it will retain an advantage even as China accumulates reserves.
CNNGo: Is any country in a trickier situation vis-a-vis Chimerica than Japan?
Japan for many decades thrived because of its intimate relationship with the United States. Now it rises or falls based on its increasingly dependent relationship on China, as an exporter to the Chinese market. But as China begins to make much of what Japan now exports, that will pose a serious challenge to an already challenged Japanese economy.
CNNGo: You say KFC not the famous ‘Tank Man’ is the enduring icon of Tiananmen Square. Explain.
In 1989, the Chinese leadership made a choice: no political reform in exchange for hyper-charged economic reform. The process was of course messier, but that was the tradeoff. In that sense, the business opportunities created by foreign companies such as Kentucky Fried Chicken, Avon, Federal Express and hundreds of others mattered more to the shape of Chinese society between 1989 and 2009 than the futile and tragic protests of Tiananmen.
CNNGo: What currently unknown Chinese brands will be household names in ten years?
Some are already making waves across the world, such as telecommunications and Internet hardware companies like Huawei and ZTE, and computer maker Lenovo. Other companies likely to make a global impact are China Mobile and some of the newer automobile companies.
CNNGo: Ultimately, all of this prosperity and stability depends upon the uninhibited flow of oil. How long until China can play genuine makeweight in the Middle East?
The Chinese government certainly knows that its dependency on foreign oil is a potential vulnerability and it doesn’t want to fall into the same trap as the United States and become permanently engaged in the Middle East. So the Chinese have been pursuing energy deals in Africa, South America and Central Asia and also focusing more on domestic production, not just of coal but of hydropower and nuclear as well as alternative energy sources such as solar.
CNNGo: What fears keep Chinese economic planners awake at night?
That the U.S. economy is unstable and that too much instability will cause economic ripples in China itself. They also worry that they won’t be able to maintain domestic growth in China quickly enough to provide the 20 million jobs a year that are needed to accomplish the transition from a poor rural economy to a thriving urban one. They are racing against that clock.
CNNGo: Lots of money, lots of growth, lots of poverty. How similar are the economies of China and India?
They are in that, yes, there’s lots of money, lots of growth and lots of poverty. But China has a huge advantage in having built a modern infrastructure and in being more open to global business. Even though India is democratic and has a more open society, China is actually more open economically to world commerce.
CNNGo: How do consumers and workers in Thailand or Singapore benefit — or not — from an ascendant Chimerica?
Countries such as Singapore, Japan and Korea have seen their fortunes rise or fall based on how much they can export to China. China’s need for high-end steel, power equipment and machinery is still immense and not met by domestic production within China. Thailand is somewhat less connected, but insofar as the region expands or contracts, Thailand’s fortunes rise and fall.
CNNGo: I’ve got a million U.S. dollars to invest long-term in commercial property in Hong Kong, Shanghai or Beijing. In which city do I put my money?
Unless you live in those markets and know the dynamics, it’s probably not a good idea to sink your million dollars into real estate, commercial or residential. China’s growth will be accompanied by many bubbles and in real estate especially.
CNNGo: You say that Chimerica has occurred against the wishes of millions. Will Chimerica grow and flourish over the next ten years or will it be stifled?
If this system continues to generate increased prosperity in both the United States and China, it will flourish. But if many millions feel that they are getting the short end of the stick, they will look for someone to blame, and Chimerica will make an easy target.