Chimerica: Is It Possible?

By Pavel Koshkin

Chimerica is a term proposed by prominent historian Niall Ferguson. It is believed to describe the economic collaboration between China and the United States. Actually, Chimerica reflects the current economic trends during the world financial crisis when China proved to be one of most influential powers because of its huge ecomomic growth.

Today some American politicians and journalists see China as the most serious business rival to the United States, which might be rooted from Fareed Zakaria's recent book “Post American world.” Chinese export has increased a great deal during the last five years, showing 1,600 percent growth. Besides, China is the biggest holder of foreign currency and has more than $2.4 trillion, which is three times as much as the European Union holds. Last year, China became the biggest creditor of the USA; it holds more than 10 percent of the U.S. bonds. Furthermore, American markets and shops are crowded with Chinese goods which complicates the interdependence between two powers.

However, the U.S. puts great responsibility on the Chinese Communist party. America accuses China of increasing the economic crisis which mostly affects China's image. The major American newspapers such as, the Washington Post, the New York Times, the International Herald Tribune, and the Wall Street Journal take this into account. On the one hand, China is predicted to be the most prosperous country, on the other hand China is often described as an overheated bomb.

For example,Tyler Cowen, a contributor for the New York Times, claims that regardless of the importance of American-Chinese economic collaboration, “China’s economic weakness will be a bigger problem than China’s economic strengths. China uses American spending power to enlarge its private sector, while America uses China’s lending power to expand its public sector. Yet this arrangement may unravel in a dangerous way, and if it does, the most likely culprit will be China’s economic overcapacity.”

Cowen also believes that China may face a serious economic crisis after a 30-year run of stellar economic growth. “History has shown that no major economy has grown into maturity without bubbles, crises and possibly even civil strife or civil wars along the way. Is China exempt from this broader pattern? Americans have found this out the hard way in their own financial crisis,” Cowen says.

Likewise, Wall Street Journal columnist Daniel Rosen assumes that overcapacity and unemployment might affect China’s economic growth in 2010. However, some journalists from the New York Times and the International Herald Tribune still believe that Chinese economic prosperity should contribute to the world economic stability. For instance, Thomas L. Friedman, a columnist for the New York Times, and his counterpart from “The International Herald Tribune” Roger Cohen share the opinion that only American-Chinese economic partnership will help to cope with the world economic downturn. According to Cohen and Friedman, it is reasonable to follow the examples of China’s industry in order to promote the American economy. At the same time, these journalists criticize the Chinese government for the lack of economic transparency within China and the restrictions imposed on local businessmen. Cohen pays tribute to the Chinese economy and ironically describes China as a “single-party democracy.”

“It doesn’t exist. It’s an oxymoron, although a U.S. primary is a vote within one party. It can easily be the semantic disguise for outrage and oppression. But it just may be the most important political idea of the 21st century,” Cohen says.

Friedman mentions that he personally recognizes the Chinese companies located in Shanghai and Hong Kong, not those controlled by the Communist party. “Chinese companies today are both more backward and more advanced than most Americans realize. There are actually two Chinese economies today. There is the Communist Party and its affiliates; let’s call them Command China. These are the very traditional state-owned enterprises. Alongside them, there is a second China, largely concentrated in coastal cities like Shanghai and Hong Kong. This is a highly entrepreneurial sector that has developed sophisticated techniques to generate and participate in diverse, high-value flows of business knowledge. I call that Network China.”

The columnists from the Washington Post and Newsweek see the well being of China as a big problem and serious rivalry for the world dominance unlike their counterparts from the New York Times and the International Herald Tribune. For example, the journalists from the Washington Post, Harold Meyerson and Robert Samuelson, are seriously concerned with the Chinese leadership during the financial economic crisis and the U.S. economic debt to China. Chinese economic interference in some American companies and organizations, including Morgan Stanley, Citigroup, Bank of America, also bring about serious concern among these journalists. The Chinese government bought a great deal of assets of these companies.

Their colleagues from Newsweek Rana Foroohar and Melinda Liu are discouraged by the fact that Chinese currency might replace the American dollar in some Southeast Asian countries including Indonesia, South Korea and Argentina. “Beijing's efforts to push the yen as a rival to the dollar are now making tentative progress. In the last few months, China has inked $100 billion in currency-swap agreements with six countries, including Argentina, Indonesia, and South Korea. The yen has become an official trading currency between Southeast Asia and two Chinese provinces along its periphery. Those countries will eventually be able to use the Chinese currency for deals between each other. In another low-profile, important step toward making the yen a freely convertible, international currency, Beijing issued its first international bond offering in Hong Kong late last year.”

It’s also worth mentioning that both conservatives and liberals find common ground on the deep economic interdependence between the two powers. They agree the Chinese economy and American one can’t function separately. Remarkably, Niall Ferguson, the very prominent professor of history, claims the mutual interest of China and the USA are so intertwined that these countries should be called Chimerica: this union seemed to be a match made in heaven. While eastern Chimericans saved their money, their western counterparts spent money.

“Chimerica, the partnership between the big saver and the big spender is key,” said Mr. Ferguson, of the Washington Post. It remains to be seen whether it will come true.