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Settle Down, China Isn't Overtaking U.S. Economic Power and Here's Why

Aaron Friedberg, East Asia professor of Politics and International Affairs, Woodrow Wilson School at Princeton University

Friedberg, speaking by phone from Princeton, N.J., began the interview by saying that China's rising power relative to the U.S. is fueled by perception.

"China is growing fast, though not as fast as it was, and faster than the United States and faster than other countries of the world," Friedberg said.

It's true. Researchers, investors, businesses, politicians and middle-class Americans understand that China is a major player in the global economy and our daily lives. The reason market observers stayed up until late hours on Sunday to peek at China's manufacturing data is because a slowdown in China directly impacts the American economy. Contraction in the manufacturing sector for the sixth-consecutive month isn't something to cheer about as the interconnectedness of economies contributes to the strength and weakness of global economic trends.

"The question is not about whether [China] will slow, but when and how rapidly it will slow down," Friedberg said.

China is entering a new phase of its economic development. Always eager to downplay its progress and quietly maintain its perception as a developing nation that posses international economic power, the country won't be posting GDP growth figures of 8% or more on a regular basis. That's not necessarily a bad thing. The Chinese Communist Party understands that the makeup of its economy must transform from a manufacturing-only country to one that drives growth by consumption.

Friedberg pointed out that the Communist Party has been saying this for 10 years, but that it hasn't started to make the changes or transitioned, which he thinks is because of the structure of the political system.

Following Deng Xiaoping's careful rejection of Mao Zedong's style of communism (socialism with Chinese characteristics), the country managed to reform the mangled economic system by launching massive state-owned enterprise programs and supporting the successful township and village enterprises, which incubated some of China's best entrepreneurship.

But tight control of massive state-owned enterprises, coupled with hidden corruption, has hindered domestic business successes. (de Jonquieres cited a report that said state-owned enterprises have failed to earn more than the subsidies given to them).

While many American observers think that ultimately China must reform is political identity in order to trigger a true economic renaissance, it would be unwise to think such revolutionary reforms are near. Nor is it fair to argue that China won't figure out how to solve its poverty, middle-class underperformance and other pitfalls by remaining a one-party system. Without delving deeper into it here, the Chinese Communist Party is a complex political body with deep differences of opinion among its power brokers across many serious social, political and economic questions.

"China is much more capable and well off than it was a decade ago," Friedberg said, recounting the party's ability to adapt.

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