EDITORIAL: The Chinese puzzle

OPINION:

There’s wide agreement that China is America’s No. 1 foreign concern. But there’s never been such a difference of opinion among China hands about what’s happening in China, and what if anything the United States could and should do about it.

The notion that there’s “a peaceful rising China” is a notion that even the government in Beijing no longer encourages.

The argument among the China hands, including those at the State Department, is complex. (That’s the way diplomats think arguments should be). The question is whether China is a giant with a growing military, eager to dominate East Asia if not the world, or a wounded and ailing giant about to collapse. Or to stagnate economically and politically. Or both.

The idea that a crippled China could threaten international economic security comes as a surprise to most Americans, dependent as we have become on China as the source of the goodies a consumer society craves.

China’s 1.3 billion people are moving into the cities, transforming a primitive rural society and culture into a nation of cities, a transformation that took other societies decades if not generations to accomplish. Now there are signs of more changes coming.

Growth is dropping dramatically. For some time the Beijing government has regarded high growth as justification for continuing oppressive one-party rule. The growth figures — which stand now at 7 percent — are astonishing, and the rate at which the figures are falling, from a quarterly expansion of nearly 20 percent in 2011 to just 5.8 percent in the first quarter of this year, is astonishing, too.

China emerged from the 2008-09 international crisis unscathed, with an enormous monetary expansion twice as large as the U.S. stimulus scheme, an expansion distributed twice as quickly, with state-owned banks lending without regard to risk. Growth soared over 20 percent in 2010. That has floated a huge corporate debt, rising since 2007 by 50 percent. Regional and local government debt, based on sale of land (an inventory now exhausted) is enormous — and nobody seems to know how big that debt may be.

Although Beijing holds $3.73 trillion in reserves, these fell by $260 billion between June of last year and March of this year, with $300 billion flowing out in the six months that ended in March. With a tiny super-rich elite holding more than half of that capital, any collapse of confidence could become an avalanche, just as the government attempts a partial liberalization of its controls on capital. The government wants its currency, the renminbao, to become a reserve currency.

With Shanghai’s stock market having become a casino — Chinese investors hold shares for an average of only four weeks — its recent sharp ups and dramatic downs are confidence indicators, and the shares are not an investment repository. Beijing’s money managers switched gears suddenly in mid-June, from tightening credit to unleashing the monopolistic government banks to permit a refinancing of the collapsing stock market.

The dramatic drop in the growth rate sank the world commodities markets and the government is stuck with relatively large overseas infrastructure developments abroad. Oil producers in Angola can’t pay their debt with high-priced oil. That’s one way Beijing’s problems are part of a familiar world scene, of continuing problems with the euro and the American economy recovering in fits and starts.

While all eyes are focused on the Greek crisis, a dark shadow of China falls quietly at the other end of the world economy, leaving American policymakers in a quandary, about whether Washington faces a China growing more aggressive, or a China about to bust. Or maybe both.