Communism ain't what it used to be - but Chinese government propaganda is still flexible
China still has a Communist government, at least in the sense that it maintains a dictatorship on the Leninist model. But the much-reported Xinhua official news agency commentary from this past week on US debt finds common cause with Republican and Democratic austerity advocates. APF gives its version in China has right to demand US address debt problem: Xinhua 08/06/2011.
In a stinging commentary, Xinhua said Washington needed to "come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone". ...
China, sitting on the world's biggest foreign exchange reserves of around $3.20 trillion as of the end of June, is the largest holder of US Treasuries.
Xinhua said that unless Washington made substantial cuts to what it called the "US gigantic military expenditure and bloated social welfare costs", the downgrade would simply be a "prelude to more devastating credit rating cuts".
"China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets," the English-language commentary said.
"To cure its addiction to debts, the United States has to re-establish the common sense principle that one should live within its means."
"The days when the debt-ridden Uncle Sam could leisurely squander unlimited overseas borrowing appeared to be numbered," said Xinhua. [my emphasis]
Okay, propaganda is propaganda, and it can change from week to week. And it's not as though governments habitually say exactly what their full position is in statements like this. And this was a commentary in the official news agency, not a formal government pronouncement.
It's just ironic to note that "Communist China," once known as "Red China" in the US political vocabulary before red bizarrely became the Republican party color after the 2000 election, is joining with the US Republican "reds" to complain that the United States has "bloated social welfare costs." But does this mean that Glenn Beck is right and that us American supporters of Social Security and Medicare are all to the left of Communists?
Actually, my guess is that what it means is that the Chinese leadership via Xinhua is tweaking the US over acting like the giant banana republic we seem to have become. I'm not well-enough informed on China's current social "safety net" to say what a realistic comparison would be between, say, the access of elderly people to essential health care in China vs. Medicare in the US.
But it's worth noting that the quoted Xinhua criticism focused on "US gigantic military expenditure" as well as our allegedly "bloated social welfare costs." As the adherents of the Realist foreign policy school constantly remind us, China is increasingly a competitor to the USA in terms of world power right now. Before the Cheney-Bush Administration and the neocons seized on the hideously deadly threat of "Islamic terrorism" to justify military budgets higher than Cold War levels, they looked to China to be the looming bogeyman to fill that role. The infamous report of the Project for the New American Century was centered around positioning China as the primary justification for large military budgets and the national security state.
In cold Realist foreign-policy terms, China has an interest in limiting the world power of the US. One presumes the Chinese leaders don't make the well-being of American unemployed and elderly one of their highest priorities, though presumably ritual pronouncements on official occasions about their solidarity with the workers of the world are still in order. If political battles over the debt lead to weakening of the US assertiveness in oil-producing countries of the world, China has no pressing interest in discouraging that so long as their own economic interests aren't adversely affected on balance.
Is the Chinese leadership actually worried that the US will default on its debt? If I had to guess, I would doubt it seriously. On the other head, what we're seeing in practice in Europe and the United States in the face of what an earlier generation of Reds might have called a new "general crisis of capitalism" (a term Communists applied to the Great Depression) is that supposedly sophisticated elites seriously seem to think that austerity economics is a good thing, both for the capitalist system in general and individual capitalists as well. Despite overwhelming experiential evidence to the contrary since 1929. So, who knows, maybe the Chinese leaders actually do think the budget deficit is the worst economic problem of the United States, just like President Obama and the Republicans at least claim to think. (Obama, some leading Democrats and virtually the entire punditocracy really seem to believe that; given the history of the last 30 years, it's impossible for me to believe that the real existing Republican Party actually thinks so.)
China does have a long-standing irritation with the United States over Chinese currency controls on the renminbi, maintaining it at a below-market value relative to the dollar. Genuine credit problems on the part of the United States would exacerbate that tension. So China's well-publicized complaint may be aimed more at indicating they plan to hold tough against US demands for allowing the renminbi to float closer to market levels. Of China $3.2 trillion in foreign currency reserves held by their central bank, a third is in dollars. So if the dollar declines relative to other currencies in the world even if it remain strong against the renminbi, that in itself causes a problem for China. (Frank Stocker und Nina Trentmann, Der Fluch des vielen Geldes bedroht ChinaDie Welt 07.08.2011)
Though the U.S. Treasury promptly challenged the unprecedented downgrade, many outside the United States believe the credit rating cut is an overdue bill that America has to pay for its own debt addition and the short-sighted political wrangling in Washington.
Dagong Global, a fledgling Chinese rating agency, degraded the U.S. treasury bonds late last year, yet its move was met then with a sense of arrogance and cynicism from some Western commentators. Now S&P has proved what its Chinese counterpart has done is nothing but telling the global investors the ugly truth.
And it does talk about "the U.S. gigantic military expenditure and bloated social welfare costs." And the editorial makes a pitch for the Chinese proposal of a new global reserve currency, while is unlikely to appear any time soon:
Though chances for a full-blown U.S. default are still slim now, the S&P downgrade serves as another warning shot about the long-term sustainability of the U.S. government finances.
International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country.
Some European countries, plagued with sovereign debt issues, are now resorting to debt financing from the market as well as international organizations. It is admittedly an expedient, but definitely not an ultimate solution.
The European Union (EU) has noted the key factor behind sovereign debt issues is that some of its members recklessly ran up debts to retain their national welfare. In contrast with a rise in welfare and costs, efficiency and competitiveness are on the decline. The current bailouts offered by international bodies such as the EU are, in a sense, to "rob Peter to pay Paul."
As big economies, the United States and the EU wield an enormous influence on and shoulder a great responsibility for the world economy. Faced with a series of debt crises, they need to reflect on their economic and social development modes and take concrete steps to help solve the "imbalance" problem of the world economy. [my emphasis]
Only by introducing reform can they save themselves; only with a sound economic structure can they assume responsibility for the world economy.