When the next global economic crises hits — not if, but when — how will China deal with it compared to the United States?
First, as of October 2018, the U.S. government owes China $1.138 trillion dollars. That’s 29 percent of the $3.9 trillion in Treasury bills, notes, and bonds held by foreign countries. The rest of the $21 trillion U.S. national debt is owned by either the American people or by the U.S. government itself. That is equivalent to about 47.6% of GDP.
On the other hand, the national debt of the People’s Republic of China is the total amount of money owed by the government and all state organizations and government branches of China. As of October 2018, it stands at approximately CN¥ 36 trillion (US$ 5.2 trillion),
In 2007, the United States federal government was only $9-trillion in debt. Today, it is $22.7 trillion in debt and with Trump cutting taxes and spending more; it is going to grow much bigger. The United States recorded a government debt equivalent to 105.40-percent of the country’s Gross Domestic Product in 2017, and there is no end in sight.
After 2008, almost nine-million Americans lost their jobs, and there were more than 3.1 million foreclosure filings issued during 2008, and that was just for that one year. That can’t happen in rural China and most of China’s factory workers have homes in rural China. When a job is lost in an urban city, the government gave the unemployed workers a free train ticket to go home to the countryside where the family home was not at risk of being taken away since there was no mortgage or property tax to worry about.
What happened in China after 2008 reveals how the Chinese will survive the next global financial disaster.
“The lack in demand from abroad meant factory closures, resulting in high job losses all over China. Guangzhou, a major manufacturing town, lost tens of thousands of workers in 2008, forcing citizens to return to their home in the countryside.” Along with being forced to go home, most if not all of those Chinese citizens were allowed to retire early and collect Social Security. Younger workers were put to work in state owned factories and sent to work on infrastructure projects.
HROne says, “China’s Social Security System consists of 5 mandatory insurance schemes (pension fund, medical insurance, industrial injury insurance, unemployment insurance and maternity insurance) + a housing fund (only applicable to Chinese employees).” … “An individual can receive a pension based on the amount accumulated in his/her individual fund after retirement.”
“In general, individuals need to pay at least 15-years of contributions prior to receiving a pension in China. Some industries have different retirement ages, but mainly men are 55 years old, women are 50 years old (blue-collar work), men are 60 years old, and women are 55 years old (white-collar work). The amount of retirement benefits depends on local regulations. Due to China’s population problems, these ages may soon change.”
The difference between the United States is China incorporates the characteristics of socialism, capitalism, and communism. China is not a pure communist or socialist or capitalist state. It is a hybrid and the CCP holds the reins of power.
As a socialist-capitalism country, all of China’s land is owned by the government. In urban China, the government leases homes and businesses but doesn’t sell the land. In most of if not all of rural China there is no mortgage or property tax, so losing your urban job and returning to your rural village home in the countryside doesn’t mean you are going to lose your home and become homeless. China also launched a $586 billion stimulus package designed to encourage more consumer spending and build new infrastructure putting people to work.
The United States is one of the most capitalistic countries in the world. Capitalism is an ideology where the means of production is controlled by private business. This means that wealthy, powerful individual citizens run the economy without government interfering in production or pricing.
What did the United States do in 2008? President G. W. Bush, not President Obama, signed TARP’s 700-billion dollar bailout program. The initial purpose was to save the banks … not the people. The TARP program quickly turned around the banking industry but the U.S. didn’t do what China did to generate consumer spending and create infrastructure jobs. Yet infrastructure in the US is in horrible shape from its electric grid, its highway system, to its railroad network and bridges. G. W. Bush never intended the banks to pay the government back. When Obama became president, he changed that and most of that public money was paid back to the government.
While China used its government bailout money to help its people, the United States did nothing for its working-consumer class and more than a decade later many Americans are still struggling to survive financially. When the next global economic crises hits, no one knows what will happen in the United States, because that depends on who is president at the time and what political party controls one or both Houses of Congress
For instance, instead of improving the social safety net in the United States, MarketWatch.com reports, “Why the latest warnings about cuts to Social Security and Medicare are a reason to worry.”
Here’s how bad: “Unless something’s done to shore up Social Security, monthly checks could get cut 23% by 2034.”
I think it’s a safe bet that China’s government will do something similar to what it did in and after 2008.
The United States will probably also do the same thing it did last time: bail out the banks and big corporations while continuing to keep cutting taxes for the wealthiest one-percent of Americans. As for the social safety net that’s supposed to be there for most U.S. citizens, who knows how it will weather another economic crises since it is already at risk.
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Lloyd Lofthouse is the award-winning author of My Splendid Concubine, Crazy is Normal, Running with the Enemy, and The Redemption of Don Juan Casanova.
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