With warnings – and mixed metaphors – about tripping over cans kicked down roads and bungee jumping into abysses, reactions from China to the just-struck United States’ “fiscal cliff” budget deal have been colorful – and critical.
Get it together, is the message: American democracy isn’t working if politicians can’t pass national budgets on time. And the mess reduces the attractiveness of the American Model to the world.
One story by Xinhua, the state news agency, compared U.S. politicians to bungee jumpers, pointing out that the term “fiscal cliff” wasn’t actually right since the country did fall off a cliff, as 2012 turned into 2013 without a deal, but bounced back when agreement came on Wednesday, Asia time.
Such a fall should have been deadly, Xinhua said. “So describing this finance crisis as ‘bungee jumping’ may be more appropriate.”
“Still, to other countries, the United States’s increasingly serious decision-making problems reduces the attractiveness of the American Model and trust in the American economy,” Xinhua said.
China’s views matter for all sorts of reasons, including geo-politics, but also because it one of the biggest creditors of the U.S. government via its huge U.S. treasury purchases. This makes China vulnerable – and concerned.
America is in decline, implied Xinhua in a commentary.
“The American people were once better known for their ability to make tough choices on difficult issues,” ran a separate Xinhua story – this one a commentary – by a person named Ming Jinwei. (Such commentaries are not official statements by the government but are believed to reflect high-level government opinion.)
“The Americans may be proud of their mature Democracy, but the political gridlock in Washington really looks ugly from an outsider’s view,” the commentary ran.
Americans may regard the cliff-hanger deal as their own private business, but, “As the world’ s sole superpower, U.S. domestic failures to reach deals on critical issues have implications for the whole world,” it ran.
“For the Americans, their government has been in the red for too long. Since 2002, Uncle Sam has not tasted any government surplus in over a decade as it borrows heavily to support costly wars in the Middle East and to stimulate the economy out of a recession in the wake of the global financial crisis,” ran the commentary.
The theme continued in another Xinhua story: “In a democracy like the United States, tax increases and spending cuts, the exact dose of medicine needed to cure its chronic debt disease, have long proved hugely unpopular among voters. So the politicians have chosen to kick the can down the road again and again,” it said, reflecting a widespread horror in China at the size of the United States’ $16 trillion debt – which will continue to grow even with this week’s deal.
“But as we all know, the can will never disappear. Sometime and somewhere, you might trip over it and fall hard on the ground, or in the U.S. case, into an abyss you can never come out of,” Xinhua warned.
Still, China has its own challenges, as this Bloomberg story today makes clear, chiefly the threat of its own domestic debt and “cotton candy” growth.
Some of the factors that plunged the U.S. into economic crisis in 2008, adding to debt and shrinking the space within which to solve fiscal problems, are shared by China, warned David Loevinger, a former senior coordinator for China affairs at the U.S. Treasury Department.
“The U.S. got into trouble because institutions like Fannie Mae and Freddie Mac were too big to fail and had a toxic mix of private shareholders and implicit government guarantees. China’s financial system is full of Freddies and Fannies,” said Mr. Loevinger, now an Asia analyst in Los Angeles at TCW Group.
China’s risk is mostly domestic, carried by the Ministry of Finance and the state banks it runs, unlike the U.S.’s debt, which is held by parties around the world.
But China’s new leader, Xi Jinping, has inherited an economy with much more debt than the one President Hu Jintao took over in 2003, Bloomberg wrote, with government, corporate and consumer debt at an estimated 206 percent of gross domestic product, it said, citing a report by Standard Chartered Bank. In March 2003, when Mr. Hu became president, it stood at 150 percent, Bloomberg reported.
