7 simple questions and answers to understand China and the U.S.If American political candidates have a favorite punching bag, it's China. Wonkblog's Ana Swanson explains why so many candidates change their tune once elected, and just how important the U.S.-China relationship really is. (Jorge Ribas/The Washington Post)

The United States is rolling out the red carpet this week for

the leader of the world’s most populous country. Chinese

President Xi Jinping will first visit with tech executives and

other industry leaders in Seattle, then head to

Washington to meet with President Obama.

The meeting is a touchstone moment in an

increasingly tumultuous relationship. The Obama

administration has been preparing sanctions against China

following a wave of cyber-espionage from Chinese hackers.

And China has sparked the ire of U.S. businesses and

politicians by devaluing its currency and favoring Chinese

businesses over foreign ones.

Despite the tension, China remains one of the most

important countries in the world for Americans. China is so

big and fast-changing that its actions ripple around the

world and influence life for average Americans —

determining the price of things we buy, influencing what we

make at our jobs, even changing the quality of the air we

breathe.

But maybe because of its size, or its distance, or its

complexity, it can be hard to grasp exactly why China

matters. Here are seven questions — and answers — that

will bring you up to speed on the state of China, and

America's relationship with it.

1. Why does China matter? | 2. Is China still a poor country,

or is   it rich and powerful?  | 3. What do the Chinese really

want? | 4. Is China still communist?| 5. Is   China's economy

in trouble? | 6. Will China surpass the U.S. as the world's

superpower? | 7. Should the U.S. view China as a threat or

an opportunity?

 

1. Why does China matter?

For America, China is arguably the most important country

in the world.

One reason is that China is just really, really big. One in five

of all the people on the Earth lives in China. It’s the world’s

second-largest economy after the U.S., accounting for about

12 percent of the world economy and about a quarter of

global growth in recent years. It is America’s second-

largest trading partner.

China is also important because its incredible pace of

growth in recent years is transforming not just the lives of

its own people, but also of people all around the world.

One of the main ways China influences other countries is

through trade and business ties. China has long been

known as the factory to the world, pumping out a

disproportionate share of the world's iPhones, clothing,

shrimp and Christmas decorations.

The influx of cheap Chinese imports has helped some

Americans and hurt others. It has raised standards of living

for many Americans, allowing them to afford all kinds of

things they couldn't have purchased before. It has

alsosupported American jobs in fields like transportation,

retail, construction and finance.

But it has meant a loss of jobs in manufacturing. The share

of Americans working in manufacturing fell from more

than   13 percent in the late 1980s to 8.4   percent in 2007 , as

trade with China increased and its imports into the U.S.

soared, as this graph shows:

The China Syndrome: Local Labor Market Effectsof Import Competition in the United States, http://economics.mit.edu/files/6613

The lesser-known side of the story is that China is also now

a major consumer of U.S. goods. About one-quarter of the

soybeans grown in the U.S. go to China, as well as one in

five of planes manufactured by Boeing. Apple now sells

more iPhones in China than in the U.S. China is also a big

consumer of American services, like education: One   in three

foreign students in the U.S. is now from China.

No matter what kind of business you look at, China

probably affects it, says Scott Kennedy, deputy director of

the Freeman Chair in China Studies at the Center for

Strategic and International Studies, a Washington think

tank. “Even if you’re not doing business in China, you’re

most likely facing some kind of Chinese competition, or

China’s effect on the global economy affects your sector.”

Another way China is reshaping the world is through its

voracious appetite for resources, to feed its factories and

build new roads and cities. China accounts for about half of

the aluminum, copper, nickel, steel and concrete used

worldwide each year, making it a major customer for

resource-rich countries like Australia and Brazil.

Visual Capitalist, http://www.visualcapitalist.com/china-consumes-mind-boggling-amounts-of-raw-materials-chart/

China's appetite for resources is so big that the country

actually used more concrete in the last three years than the

U.S. did in the entire 20th century. (This animation, which

shows how Shanghai transformed from 1987 to 2013, helps

explain how that might be possible.)

1987 (Reuters); July 31, 2013. (Carlos Barria/Reuters)

China is important to the U.S. for security reasons, too.

China is now the dominant power in East Asia, a

region with close U.S. allies and vital shipping lanes.

China and the U.S. have some serious conflicts, for example

over cyber attacks on government and business secrets, and

China’s clashes with its neighbors over territory in the East

China Sea and South China Sea. But the U.S. and China

cooperate on issues like climate change and counter-

terrorism, and China has supported U.S. led efforts to

contain North Korea's and Iran's nuclear programs.

 

2. Is China still a poor country, or is it rich and powerful?

China, on the whole, is certainly a powerful country — able

to forge new trade agreements, launch new international

institutions, and send probes into space. But on an

individual level, its people are not that rich — at least not

yet.

In fact, the average American earned more than four times

as much as the average Chinese person did in 2013, making

$53,000 vs. $11,885. (This is on a purchasing power parity

basis, which actually makes those in poorer countries seem

relatively richer, since it accounts for the cheaper cost of

many goods and services in poorer countries.)

Those income levels might seem low for an American, but

for the Chinese they are actually a huge improvement. Back

in 2000, an average American was earning 13 times as

much as the average Chinese; in 1980, the difference was

42 times.

How many times wealthier is the average American than the average Chinese? In 1980, the average American earned $12,575.57 per year in current international dollars, while the average Chinese earned $302.31 -- a gap of 42 times. But by 2015, this gap had shrunk to four times.

In the 1970s, average Chinese aspired to buy what were

called the “four musts”: a bicycle, a radio, a wristwatch and

a sewing machine. By the 1980s, that list included a

washing machine and a television, and today people aspire

to afford cars and international vacations.

This growth in incomes over the past 40 years has lifted 500

million people in China out of poverty. The Chinese are

becoming a true middle class in a global sense, earning

more than India, Africa and much of the Asia-Pacific but

less than Europe and the U.S., as the graph below shows.

The chart shows global wealth broken down by decile, or

every 10 percent of the world wealth distribution.

Credit Suisse 2014 Global Wealth report, https://publications.credit-suisse.com/tasks/render/file/?fileID=60931FDE-A2D2-F568-B041B58C5EA591A4

But of course, averaging things obscures the real situation

for a lot of people. China is now one of the world’s more

unequal countries. Much of the wealth – and the

country’s new crop of millionaires – is concentrated on the

eastern coast, while in China’s interior hundreds of millions

of people are still basically subsistence farmers.

Here's a map that shows how that wealth is concentrated.

The darker blue areas along the coast are the cities of

Beijing and Tianjin in the north, and the city of Shanghai in

the middle, where average incomes are more than three

times as much as the interior:

Looking at China from the U.S., what we see most is

China’s impressive economic growth and expanding

international influence. We rarely see the reality on the

ground — that internally, China faces many challenges and

quite a bit of disorder.

China faces a whole host of problems that go along with

being a rapidly developing and a relatively poor

country. For example, China struggles to provide the public

services that Americans take for granted, like public

education for all, safe drinking water, and decent medical

care. And while the Chinese government may seem all-

powerful, its influence only goes so far. Many people still

evade income or real estate taxes with impunity, while

many businesses shirk government regulations.

 

3. What do the Chinese really want?

The simple answer is “a lot of different things,” because

there isn’t just one China. China can often seem monolithic

from the outside, but internally it’s a diverse country where

people have lots of different opinions, even if they can’t act

on them politically.

When it comes to China’s leaders, it’s safe to say they want

what any government around the world wants: to stay in

power.

President Obama with Chinese President Xi Jinping in Beijing. (Andy Wong/AP)

In practice, that has meant delivering economic growth and

raising standards of living. For China's current leader, Xi

Jinping, it has also meant stamping out corruption, which

many people believe was eroding the party's

popularity. Since entering office 2½ years ago, Xi has

launched an extensive crackdown on corruption,

investigating tens of thousands of Chinese — including Xi's

own political enemies.

China has become more assertive overseas and repressive

at home under Xi's authority. It's clear that he, and many

other Chinese as well, want their country to be restored to

what they see as its rightful position as one of the world's

great powers — a broad goal of national rejuvenation that

Xi has coined "the Chinese dream."

Americans tend to think of China’s rise as happening in the

past few decades, but many Chinese have a longer memory.

China has one of the world’s oldest civilizations. To those

with a long view of history, China's position as a

relatively poor country in the early 20th century is the

aberration, following thousands of years when the country

was without question one of the world's great powers. The

chart below shows just how dominant China's economy has

been for the last 2,000 years:

Michael Cembalest, JP Morgan

In fact, Chinese call the period of history between 1839,

when China lost parts of its territory to foreign countries in

the first Opium War, and 1949, when the Communist

revolution occurred, “The Century of Humiliation.” This

memory of humiliation at the hands of foreign powers often

goes hand-in-hand in China with nationalism and anti-

foreign sentiment.

So restoring China's international luster is a priority of the

government and regular people alike. However, most

Chinese are still far more concerned with everyday

challenges, like housing prices and job opportunities.

For most people, scandals that impact daily life —

like villages with soaring cancer rates, or tainted infant

formula — are more keenly felt than political issues. In fact,

when Chinese gather to protest, the cause

is often pollution,working conditions or real estate prices.

 

4. Is China still communist?

For a country that nominally follows communism, China has

a lot of Ferraris. That's because the Chinese economic

system has changed dramatically since communism — the

philosophy spawned by Karl Marx which argues that

workers should collectively own the means of production,

like factories, property and machines — first took over the

country.

The People's Republic of China was founded in 1949 after

several decades of bloody conflict between the Communist

Party of China and a group called the Nationalists. After the

communists finally won, the Nationalists fled to Taiwan and

founded the Republic of China, which the U.S. supported as

the legitimate Chinese government for decades.

Under its new leader, Mao Zedong, China closed itself off to

the West and dramatically reorganized its society. Workers

initially lived in communes organized around farms or

factories. People didn't use money to buy things, but were

given rations of food and other small necessities. The state

determined what jobs people did, what they ate, even what

songs they sang:

Mao ruled China for a quarter of a century. While he helped

modernize China in some ways — educating women, and

establishing a basic system of public health, for example —

he also presided over some ghastly moments in history,

including a famine that may have killed 36 million to   45

million people. The official line in China is still that Mao

was 70 percent correct   and 30 percent wrong .

In the late 1970s, Mao died. A man named Deng Xiaoping

(“xiao” is pronounced like the first syllable in “shower”)

took over and began opening up China to the outside world.

Deng believed strongly in the communist party, but he was

also a pragmatist who wanted to lift China out of poverty.

He famously said, “It doesn't matter whether

a cat is white or black, as long as it catches mice” – in other

words, that China could adopt any system that worked, be it

communist or capitalist. He also coined the phrase that has

basically become China’s mission statement: “To get rich is

glorious!”

Chinese leader Deng Xiaoping tries on a cowboy hat, a symbol of the U.S., at a rodeo in Simonton, Tex., in 1979. (AP)

To help people get rich, Deng began allowing foreign

investment in China’s coastal areas, and loosened

restrictions on the kinds of things people could buy and sell,

and the types of jobs they could do. Chinese agriculture

boomed as farmers were rewarded for their sales, village

collectives began manufacturing TVs and other appliances,

and foreign-funded factories cropped along China's coast.

China changed and opened up a lot, but the old rules were

altered piece by piece, rather than being fully abandoned.

That’s why the country today is still a bewildering mix of

capitalist free markets in some parts of the economy and

tight state control in others.

There are some vestiges of communism in China that

Westerners find perplexing. For example, the party actually

owns all the land in China. Rural farmers can't sell their

land, because farmland is technically owned by everyone.

And when city dwellers “buy” apartments, they are

technically only leasing them from the government for 70

years.

But while China is, in practice, mostly capitalist, the

Communist Party still rules all.

The party is ultimately in control of the government, the

military and many businesses. Most importantly, the party

is in charge of appointing almost every important person to

their position, including government ministers, CEOs,

university presidents and newspaper publishers. It is also in

charge of deciding who gets promoted in   the party itself .

About 6 percent of Chinese people are members of the

Communist Party — a group of 86 million that includes

almost all government officials, business leaders and other

social elite. Most government officials have a position both

within the party and the government. For example, when

China’s leader, Xi Jinping, comes to the U.S. he will use his

government title of president, because that’s more familiar

to Americans. But in China, his most important position is

general secretary of the Communist Party.

China has promised to open up more of its markets to

foreign competition, but don’t expect it to adopt a Western

system anytime soon. In the nearly three years that Xi

Jinping has been in power, he has strengthened his and the

party’s control over Chinese politics, business and the law.

 

5. Is China's economy in trouble?

You may have heard recently that the Chinese economy has

some problems. That's true, but it also still has a lot of

potential.

China’s growth is slowing down. Following decades of

double-digit growth, China’s economic growth slowed to 7.7

percent last year, and shows signs of decelerating further.

This has countries around the world worried, especially

countries that export a lot of resources to China, like

Australia or Brazil. But for China, the growth slowdown is

not, in itself, necessarily a bad thing.

For one thing, slowing down is pretty natural after so many

years of rapid growth. China’s growth has been, in every

sense, extraordinary. The country experienced an eight-fold

increase in living standards in 30 years – an increase that

took the U.S. 122 years and Japan about 80. As economist

Barry Naughton puts it, China’s growth is slowing in part

because it has graduated early.

As China’s economy has developed, the wages its workers

earn have risen, too. This is great for average Chinese — it

means they can afford better food, houses, cars and health

care — but it also means that low-cost manufacturing jobs

are tending to leave China for lower-cost countries like

Vietnam, Bangladesh, even Mexico. China has also

exhausted most of what economists call “catch-up” growth

from acquiring the technologies of more advanced markets.

As countries catch up and get richer, their growth just

tends to slow.

The problem is where China chooses to go from here. The

country needs to develop new sources of growth that are

consistent with being a wealthier country, with a more

skilled and higher paid workforce. But China's progress

toward this goal is uneven and uncertain. China wants to

keep its population fully employed. But instead of putting

energy into finding new sources of growth for the economy,

the government has often turned to wasteful and heavy-

handed methods for propping up growth.

For example, as China’s exports to the world slowed with

the global financial crisis, the country shifted to pumping a

lot of money into investment in infrastructure, housing and

manufacturing capacity to prop up growth. Many of those

investments were useful and profitable, but others were

not, and as time went on, they became less so. China

built bridges to nowhere, stadiums that stand empty, and

its infamous "ghost cities" — newly built cities with no one

living in them. In a country where many people are still

relatively poor, many of these investments were a tragic

waste of money.

In the short term this kind of activity is recorded as

economic growth, but in the long run it is obviously

wasteful. These activities have caused the debt owned by

the government, banks, corporations and households to

balloon to282 percent   the size of the economy, a far higher

debt burden than most developing countries, as well as

Australia, the U.S., Germany or Canada, as the graph below

shows. An unknown amount of these loans will probably

never be paid back.

McKinsey and Company, http://www.mckinsey.com/insights/economic_studies/debt_and_not_much_deleveraging

Instead of continuing to pump money into infrastructure,

China needs to find new sources of growth that are

consistent with being a wealthier country. That entails

opening up new parts of the economy to private companies

to create jobs that require more skills and offer higher pay,

like those involving the service sector, entrepreneurship

and innovation.

There are certain changes that China could make to jump-

start growth. It could, for example, allow rural farmers to

buy and sell their own land, or open up sectors dominated

by one or a few state owned companies, like telecom, to

new competitors.

In 2013, China’s top leaders made a high-level pledge to

“let the market play a decisive role,” a change that would

help the country’s economy shift in this kind of direction.

However, these reforms mostly have yet to be realized.

People are worried about whether China can pull off this

economic transition in the future, and those concerns

have contributed to a volatile stock marketand a lot

of money flowing out of the country.

China faces other challenges. For one, its population

is aging rapidly, in part due to a policy that limited Chinese

parents to having only one child. That means that a smaller

population of working people will soon have to support a

huge numbers of retirees, as well as themselves, a dynamic

that could sink the economy. For many years,

economists have been asking, “Will China get old before it

gets rich?” The answer is still not clear.

 

6. Will China surpass the U.S. as the world's superpower?

Recent polls show Americans are very worried about

Chinese cyberattacks, its growing military power, and the

amount of American debt it holds — though actually, the

Fed   holds a lot more U.S. debt than China and Japan do .

Pew Global, http://www.pewglobal.org/2015/09/09/americans-concerns-about-china-economics-cyberattacks-human-rights-top-the-list/problems-battery-by-u-s-party/

Interestingly, many Americans appear to believe that China

is already the world's superpower. But this isn't true, and it

seems unlikely to happen any time soon.

The U.S. is still, by almost every measure, the world’s

superpower, wielding much more military might, economic

power, and influence over other countries than China

has. We may be gradually moving toward a bipolar world

where the U.S. and China share that distinction equally, but

we’re not quite there yet.

"I think the reality is that China is not nearly as strong as it

wants to be perceived and as many U.S. analysts like to play

them up," says Rodger Baker, the vice president of analysis

at Stratfor, a geopolitical intelligence and advisory firm.

What is clear is that China has become a strong regional

power, able to hold its own against the U.S. in East Asia.

This continues to be an area of conflict. The U.S. wants to

remain centrally involved in Asia, but China wants to

control its own region and prevent the U.S. from being able

to contain it, says Baker.

In the South China Sea and East China Sea, where China

claims as its own territory waters that are also claimed by

U.S. allies, including South Korea, Japan and the

Philippines, China is trying to keep the U.S. from

intervening so close to its territory, says Baker. "It’s not on

the global scale that China would be a challenge to the

U.S., but certainly in the waters around the South China

Sea and East China Sea," he said.

 

7. Should the U.S. view China as a threat or an opportunity?

The U.S.-China relationship is broad, deep and complex,

with tons of ties between our countries, including business

partnerships, study abroad programs, co-produced

movies, military exercises, counter-terrorism efforts,

and joint studies of disease.

Some parts of the U.S.-China relationship are troubled and

adversarial — for example, it's not yet clear how the

countries will handle rising tensions over hacking attacks

and the looming threat of cyber warfare, or territorial

disputes in the South and East China Sea.

The countries have some significant economic disputes.

U.S. politicians decried China's recent devaluation of its

currency — though China claimed the move was actually

directed at reforming the way it manages its currency, in

line with international recommendations. The U.S. business

community protests that the playing field in China for local

and foreign businesses is far from even, and some have

begun pushing for the idea of reciprocity — that when

China bans a U.S. business, the U.S. should begin banning

Chinese businesses, too.

The U.S. and China also have significant ideological

differences that make the relationship hard to

navigate. China’s tight state control on religion, the press

and democracy rankle Americans. These conflicts have only

gotten worse under Xi Jinping, who has led prosecutions

of lawyers, journalists, NGO workers and foreign business

people for failing to fall in line.

The idea that the political system in China, the second-

largest economy in the world and the most populous

country in the world, "is moving in a direction that is so

antithetical to American values is a scary thought," says

Kenneth Lieberthal, a senior fellow at the Brookings

Institution.

Overall, the countries have basic conflict over the how

much a government should interfere in a society, says

Kennedy of CSIS. "China gives the state an enormous

degree of latitude and discretion and a right to intervene on

any question in any time. For the U.S., that right of

intervention is constrained with rights that members of

society have and external sources of accountability against

the state."

But at the same time, however, there isn’t as much

ideological distance between China and the U.S. as, for

example, the U.S. once had with the Soviet Union. China

has mostly embraced capitalism and many U.S. companies.

With a few exceptions, it has mostly participated in and

supported the international institutions created by the U.S.

and Europe.

And the U.S.-China relationship also brings substantial

benefits to the U.S., both economically and strategically.

China has supported the U.S. efforts on nuclear non-

proliferation in Iran and North Korea. The countries have

cooperated on counter-terrorism efforts in the Middle East

and Central Asia, and fighting pirates off the coast of Africa.

China assisted the U.S. with the Ebola outbreak in Africa.

The countries have forged new agreements on climate

change. China is an essential partner in this: China

uses almost as much coal as the rest of the world combined,

and it recently surpassed the U.S. as the world's largest

carbon emitter.

The economies are so tied through investment, debt,

business deals and trade that they may very well rise or

sink together. On the economic side, China is now investing

more money in the U.S. than the U.S. is in China. Given all

of these ties, it’s in the U.S. interest to work with China, at

least sometimes, as a close partner.

Big global issues and regional issues become “more

manageable when the U.S. and China actively cooperate or

at least work in parallel, and become less manageable and

far more dangerous if the U.S. and China do not cooperate,”

says Lieberthal of Brookings. “While the record is mixed, on

things like counter-terrorism, climate and global health

issues, the cooperation exceeds the competition.”

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