Derek Scissors

China has a long, long way to go to be in the same league as the United States If China doesn't reform, it will stagnate A successful, reforming China will challenge America's economic leadership

Better late than never. The absence of pro-market economic reform in China is now widely recognized, if years too late. Much of the world awaits the Communist Party's autumn plenary meetings, hoping for a restart of the process. According to General Secretary Xi Jinping, his new government will "deepen" reform.[1] But what is packaged as reform will not be welcome outside the Party, or even recognizable.

The tidal wave of Chinese investment around the world predicted by some and feared by others has not materialized and is unlikely to. Various obstacles to overseas spending by the People's Republic of China (PRC) kept growth moderate in the first half of 2013. Energy was again the focus, but the dominance of state-owned enterprises has begun to ease.

Official Chinese economic statistics, from unemployment to arable land, are controlled by the Communist Party and therefore cannot be trusted. The prevailing American and global view of China as a rising, if presently troubled, economic superpower is based on this unreliable data. Evaluation of selected economic, financial, and sociopolitical indicators shows them to be inconsistent and most likely inaccurate, so that American and global decision making is badly informed. A sustained effort to compile more accurate data on China would clarify China's global economic role and improve the basis for U.S. policymaking and limit taxpayer exposure.

The first question regarding China's newly released economic numbers is not how fast the People's Republic of China (PRC) grew last year. Rather, it is whether stars are aligned for the State Statistical Bureau (SSB) to provide accurate information about GDP and more useful measures, such as household consumption.

Trade and investment with China benefits the U.S. This is evident in choices made by individuals and companies every day to buy Chinese goods and work with Chinese partners. Indeed, American business has been the chief proponent of a sound U.S.–China economic relationship.

China has the second-largest economy in the world. It is the world's second-biggest trader. It has trillions of dollars invested around the world. China matters. Every day we buy things made in China, though they may be made there by American or Dutch or Korean corporations. China buys a lot of our government's debt and lately it has been buying small pieces of American companies and land. American companies can win or lose based on their strategies for doing business with China. Chinese students love our schools. We gain much from the economic relationship. American consumers and companies chose to spend $400 billion in 2011 on goods made in China. China was the third-largest buyer of our exports, a source of strength for our economy. American companies looking for investors and American homeowners looking for buyers benefit from Chinese money coming to the U.S. Chinese tourists are visiting the U.S. in greater numbers. The relationship also has serious problems. It's not clear the Chinese government sees trade as a win–win-it seems to want China to always win more. Coming from a country where competition is mostly about politics, Chinese firms don't always follow the rule of law. The U.S.–China economic relationship has many sides to it, and a few of them are a bit seedy.

Chinese investment could be a global economic force for decades to come. The potential was underlined in the first half of 2012, when investment climbed more strongly than in 2011. The U.S. in particular saw a rebound. Policymakers should welcome this development by making the American review process quicker and more transparent. Washington should also seek better American investment access on a bilateral and multilateral basis, including in China. The China Global Investment Tracker The Heritage Foundation offers the only public dataset of Chinese outward investment and dates back to 2005.[1] The China Global Investment Tracker includes well over 300 investments of $100 million or more from the beginning of 2005 through June 30, 2012. In addition to transactions valued at less than $100 million, the dataset does not include bond purchases, trade, loans, or aid.

There are serious misconceptions regarding China's energy and environmental performance and what it means for the U.S. China is indeed spending a great deal of money on clean energy, but it is doing so largely in response to its own policy errors. The combined results of this spending and these errors are abysmal-waste, below-average gains in energy efficiency, lack of innovation, greater dependence on foreign sources, and a terrible record on the environment.

Global financial markets are keenly interested in China's short-term economic direction and policy choices. American policy should look farther. If China chooses to try to stimulate its economy in the second half of the year, even if successful, it will only exacerbate a more pressing long-term challenge.

A lot has changed in a year. In February 2011, the Commission was compiling information on the expanding role of Chinese state-owned enterprises (SOEs). Since then, the debate has noticeably swung in favor of those believing that SOEs are a global economic problem, one which requires considerable improvement in American policy.[1] How to make that improvement, unfortunately, has not been settled.

There is great concern in the U.S. about Chinese currency policy costing American jobs. But over two decades, there has been no evidence that a weak yuan causes high American unemployment. What American policymakers should focus on is other Chinese actions that do harm the U.S. and the entire global economy, particularly China's market-distorting and anti-competitive subsidies. Heritage Foundation Asia economic policy expert Derek Scissors explains why the U.S. must identify and measure Chinese subsidies as the necessary first step in reducing the damage they cause.

The scheduled autumn visit of China's next Communist Party General Secretary, Xi Jinping, to Washington is a good opportunity for the U.S. to re-examine its often mismanaged economic diplomacy with China. Policymakers from both parties frequently point to the seemingly exceptional importance of China to the American economy, yet have created an inadequate, almost random, set of institutions to guide bilateral economic relations. Heritage Foundation China and international economics expert Derek Scissors identifies the problems and offers ways to improve the institutional toolkit.

One subject of the third round of the U.S.–China Strategic and Economic Dialogue will be cybersecurity. Part of Secretary of Defense Robert Gates's proposed Strategic Security Dialogue, it reflects the growing prominence of cybersecurity in Sino-American strategic relations. The concerns include computer network exploitation and computer network attacks, but also tampering with the physical infrastructure of communications and computer networks. Vulnerabilities could be introduced in the course of manufacturing equipment or created through purchase of malignant or counterfeit goods. Recent experience highlights these problems. Such possibilities have brought calls for trade barriers, ranging from random entry-point inspections of various types of goods and equipment (e.g., chips and routers) to prohibition of some imports (e.g., communications hardware), especially from a major manufacturer, the People's Republic of China (PRC).

China's leap from poverty due to the marvelously successful market reforms introduced in 1978 has obscured serious weaknesses in its economy-especially compared to the American economy. These weaknesses have been exacerbated by renewed Chinese state intervention that began around 2003. Many seem convinced that China is at the cusp of surpassing the U.S. economically. But Americans should not lose track of their huge advantages over the Chinese-in income, in natural resources, and in surprising areas such as labor. Heritage Foundation China and economic expert Derek Scissors, explains why it is vital that the U.S. remember its strengths and recognize profound Chinese weaknesses.

In its 10-year history, the China Global Investment Tracker has solved mysteries regarding what Chinese companies are actually doing in transportation and mining, Latin America and the Middle East, and so on. Now it is contributing to a mystery. The tracker shows spending growing only slightly over 2013, while the Chinese Ministry of Commerce reported a double-digit expansion through November. The divergence appeared suddenly and sharply over the summer.

In its 10-year history, the China Global Investment Tracker has solved mysteries regarding what Chinese companies are actually doing in transportation and mining, Latin America and the Middle East, and so on. Now it is contributing to a mystery. The tracker shows spending growing only slightly over 2013, while the Chinese Ministry of Commerce reported a double-digit expansion through November. The divergence appeared suddenly and sharply over the summer.