China's economy is inextricably linked with the U.S. -- and the world

Is China’s economy in trouble?

That’s what UC San Diego history and Chinese studies professor and China expert Karl Gerth is suggesting, especially after the world’s fastest-growing — but now slowing — economy devalued its currency, sending stock markets around the world into a tailspin in late August.

“The structural problems in China are great,” Gerth said. “It’s not something you can fix overnight. It’s essentially a house-of-cards economy.”

In light of recent headlines, Gerth, who co-directs UC San Diego’s Modern Chinese History program, lent his expertise in a recent interview to reflect on China’s economic situation and what it means for the United States and the world.

‘As China Goes, So Goes the World’

Gerth has written extensively on Chinese consumerism. Based on more than 25 years of living and traveling to China and East Asia, his latest book, “As China Goes, So Goes the World: How Chinese Consumers Are Transforming Everything,” explores the wide-ranging ramifications of China’s shift toward a market economy over the past 30 years. He also regularly speaks to multinational companies such as J.P. Morgan, Shell and Aviva, as well as at international events to nonacademic audiences about contemporary Chinese consumerism.

“It’s difficult to convey how quickly consumer lifestyles have taken hold throughout China since the market reforms initiated at the end of the 1970s,” Gerth writes in his new book. “Today any visitor can see that the newly middle-class urban Chinese consumers are clearly catching up with their counterparts in wealthier countries.”

Gerth goes on to note that while China’s total consumer spending — $4 trillion — is still less than half that of the United States, it has surpassed consumer spending levels in Japan and is nearing that of the European Union. That means the Chinese have learned in just a few years how to spend, and how to spend a lot.

While Chinese consumers are spending like never before, they still have a long way to go to support the kind of consumer-driven economy that their leaders envision. China’s average savings rate of well over 30% of disposable income — one of the highest in the world — is stifling consumer demand. (U.S. households, by comparison, save about 5%, with consumption accounting for about 75% of the economy.)

Why China matters to America

There were many factors in deciding to devalue the yuan, including a surging dollar, but Gerth told us in a recent interview that the move was made in large part to make Chinese goods more affordable and more appealing to markets abroad. That made American goods less affordable in China.

Why should we care?

“We look to China as a market that can help sustain American growth,” Gerth said, explaining that essentially all multinational corporations have a financial stake in China. The downside of that global economic reality is that if U.S. goods become less affordable in China due to devaluation of the yuan, he said, then that’s going to create problems here.

“China is the great hope for American capitalism today,” Gerth said. “American-based multinationals and their political representatives in Washington need Chinese consumers to save less and spend more. But Chinese leaders, who have long promised to promote domestic consumer demand, aren’t doing their part. A weaker Chinese currency translates into more expensive imports.”

Major players on both sides

There are other profound impacts, too. For example, the Chinese have become major players in buying real estate here in the U.S. Upscale malls cater to Chinese tourists. Well-to-do families send their sons and daughters to U.S. universities and colleges in record numbers and no longer as scholarship students but full-fee payers. With a weaker yuan, demand for these goods and services can become prohibitively expensive for more Chinese.

Many of those students are coming to UC San Diego for its highly rated engineering and health and science programs. “We also happen to have one of the best programs in modern Chinese history in North America, if not the world,” Gerth said.

In fact, Gerth left the University of Oxford in England, where he taught modern Asian history, to come to UC San Diego in 2013 to help revive its Modern Chinese History Program, where he works with his students on research that aims to anchor in history major policy discussions on China and U.S.-China relations.

“Our students have awesome track records and we have remarkable faculty,” Gerth said. “It is a spectacularly successful program that attracts top doctoral candidates and places them in top jobs.”

Whatever happens to the Chinese economy and however it reverberates in the U.S., Gerth, his graduate students, and the rest of the China scholars at UC San Diego will be ready to interpret it.

David Ogul, Tribune Content Solutions

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