This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

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.

Must Read: U.S. Adds 288,000 Jobs in April; Jobless Rate Down to 6.3%

"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.

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.99 0.00%
FB $102.01 0.00%
GOOG $682.40 0.00%
TSLA $151.04 0.00%
YHOO $27.04 0.00%


Chart of I:DJI
DOW 15,973.84 +313.66 2.00%
S&P 500 1,864.78 +35.70 1.95%
NASDAQ 4,337.5120 +70.6750 1.66%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs