How to tell if the Chinese have become an economic threat

Lael Brainard and Michael O’Hanlon, both of the Brookings Institution, propose four guidelines for determining if the Chinese are up to something we should be worried about: "A test of American independence" (Financial Times, July 25, 2005, subscription required)

1. " If China became the world leader in a major strategic technology, we would have to try to limit this trend."
2. "...should the Chinese share of global computer trade increase by 50 to 100 per cent, more assertive policy measures could be required."
3. with respect to "important natural resources":  "China’s share of global oil production is modest and well below what it needs for its own consumption – a useful benchmark for assessing potentially troublesome dominance."
4. "it is not prudent to allow a huge share of the US economy to depend on favourable future political relations with one of the world’s last great autocratic states."

Brainard and O'Hanlon appear to think we come closest on #4, because of our dependence on the Chinese to finance our trade deficit.  We should address this "through fiscal policy and further exchange rate realignment" rather than "trade or investment policy."

And here is a useful reminder:

...As for owning US companies, China is a long way from buying up America. Its direct investment in the US is less than $1bn (about $2bn counting investments from Hong Kong), compared with US investment in China of over $15bn ($60bn including Hong Kong) – and a fraction of the $1,500bn of total foreign investment in the US. One should remember that when Japan went on a US buying spree two decades ago, a sharp fall in the dollar and real estate valuations turned it into a bonanza for American sellers.

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