WHAT KIND OF THREAT IS CHINA?

ch-map.gifTwo events conspired to draw my interest to this subject.  I saw this interesting post referenced on Instapundit.com.  This post considers the implications of China’s government owning portions of its “private” economy.  Imagine if the United States invested all the revenue it takes in from Social Security taxes into private companies.  Imagine that our government exercised all the latitude it wanted in the management of the “Social Security” fund.  How would this leverage on our economy be used?  How would it be abused?

Next I noticed articles such as this one (here) in today’s Washington Post.  Consider this quote.

China’s regulated oil prices have been blamed for spurring shortages in the domestic market as oil companies hoarded supplies and refineries stopped processing in order to avoid losses. At the previous prices, domestic refineries were losing the equivalent of more than $100 for each ton of crude they processed.

The situation has caused China’s oil company stocks to tank in recent months. For instance, shares of PetroChina, which in November became the world’s first trillion-dollar company by one measure of stock market capitalization, is now trading at half its peak.

As this BBC article notes (here), PetroChina is a state-owned enterprise.  China’s government regulates fuel prices, and it owns and regulates PetroChina.  Sounds like the Chinese government has everything under control, right?  Imagine an economy where everything becomes a political decision instead of just a business decision.  An article in the Wallstreet Journal put it this way. 

With inflation an increasing worry world-wide, the political furor over China’s price controls has been threatening to supplant the longstanding tussle over its exchange-rate policies as the nation’s most contentious international economic issue. U.S. Treasury Secretary Henry Paulson has been talking more about energy. He has urged Beijing to abandon its fuel-price controls, saying the U.S. found out the hard way in the 1970s they don’t work, and raised the issue again at this week’s U.S.-China Strategic Economic Dialogue.

“China’s on the verge of being the main thing the U.S. blames for high oil prices, replacing the Saudis. It’s close,” said Trevor Houser, a China energy specialist at Rhodium Group, a New York consultancy. “The people in Washington complaining about price controls are the same people talking about” the yuan, China’s currency, he said.

On Wednesday, 16 Democratic senators sent a letter to U.S. officials in President George W. Bush’s administration that blamed China’s price controls for high oil prices and urged them to press Beijing on the issue. Signers included former presidential candidate Hillary Clinton. “What Americans see happening at the pump is driven, in part, by what is happening in China,” they wrote. (from here)

Our socialist Democrats blaming communist Chinese for rising oil prices?  I suppose this example demonstrates ideology is not the first priority of a politician.  The first priority of a politician is to shift the blame.  🙂

Anyway, it would appear that China is a much more multi-faceted threat than the USSR ever was.  As China’s economy grows, the “political” decisions of its leaders can easily roil world markets.   However, there is also a positive side.  China serves as an excellent bad example.  When we look at China’s government and economy closely, we can see where our big government advocates threaten to take us.

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