What Obama Needs to Say to China's Next Supremo

Vice President Xi Jinping, slated to become China’s next supremo, arrives at the White House tomorrow. We have been told that the Obama administration will not “sacrifice the important issues for the sake of having a comfortable visit,” yet there is a sense of pessimism in Washington about America’s ability to persuade China to move in the right direction.  It seems that everyone here believes that Beijing owns the century and controls our destiny.

The truth, however, is that we have the ability to get China to do what we want. Why? Because at the moment the Chinese economy is faltering -- most indicators are pointing to low single-digit growth and “hot money” is gushing out of the country -- and Washington holds the key to rescuing it.

China at the moment is in trouble because, among other things, export growth, once the engine of its economic “miracle,” has been on a long downward trend. Last month, exports fell 0.5% on a year-to-year basis and 14.2% month-on-month, a performance well below consensus estimates. That’s a problem for Beijing because it is dependent on sales abroad to keep Chinese factories humming and workers employed, and the American market is extraordinarily important to them.

The general narrative is that, when the global downturn hit in 2008, Chinese exporters started selling more to other markets and became less reliant on tapped-out American consumers.  The facts tell the opposite story, however.  In 2008, 90.1% of China’s overall trade surplus related to sales to the United States.  That already staggering figure increased to 115.7% in 2009, and 149.2% in 2010.

And last year?  Last year, the figure was a simply unbelievable 190.5%.  In 2011, China’s trade surplus against the United States hit $295.5 billion, easily surpassing the 2010 record of $273.1 billion.