The United States and China

by Michael Canale, April 2002





 Over the past two decades, the world landscape has seen a changing of its dominant powers.  With the fall of the Soviet Union came the emergence of the United States as the world leader.  However, the lead the US has held is slowly diminishing and a new threat to their supremacy is on the horizon.  China has seen its military strength and its economic power become the focus of world attention.  The two countries are now rivals, and a new cold war is on the minds of both countries as they jockey for position.  Times have changed since the first cold war though, the economies will play the largest role this time around and the two countries need each other.  Their differences have made the adjustment towards proper diplomatic ties a shaky one, but they will need each other more and more as the world market continues to open up.

The United States capital city is Washington DC while the capital of China is Beijing.  The US is comprised of 9,629,091 sq km divided into 50 states (1) while China covers 9.6 million sq km (4).  The national currency of the United States is the dollar and the currency of China is the Yuan.  In the year 2000, the US GDP was 9.693 trillion dollars compared to China’s approximately 18,940.4 billion Yuan (1, 4).  According to the United States Census 2000, 281.4 million people were counted.  China has 1,295 million people (4).  Ethnic groups in the United States include blacks, whites, Hispanics and Latinos, Asians, Hawaiians and multi racial combinations (2, 12).  China is a diverse nation made up of 56 ethnic groups.  “The Han people made up 91.96 percent of the country’s total population, and the other 55 ethnic groups, 8.04 percent.  As the majority of the population is of the Han ethnic group, China’s other ethnic groups are customarily referred to as the national minorities. (4)”  The United States is the third largest country in the world in population and the fourth largest in area.  China and India are the only countries with more people. Only Russia, Canada, and China have larger areas (10). 


Both China and the United states have comparable size.  They are also multicultural societies, however China is not nearly as diverse as the United States is.  Most of China’s population is held within the Han while the others make up a small fraction.  The United States on the other hand is primarily made up of Whites and Blacks, but the face of America is changing all the time with the immigration laws allowing in many different cultures.  Over the next decade, Hispanics will begin to take a larger percentage of the US population.  The overall population size of the two countries varies greatly, China’s population is five times that of the United States.  But the US has a greater standard of living for its smaller population.


The Great Wall of China is so impressive that it can even be seen from space. Its massive size runs 6,700 kilometers from east to west across five provinces of China (3).  Although the wall has slowly deteriorated over the years, it remains as one of the highlights of China’s worth.  “Originally built in the Spring and Autumn Period and Warring States Period as a defensive fortification by the three states: Yan, Zhao and Qin, the Great Wall went through constant extensions and repairs in later dynasties.  In fact, it was disconnected as independent walls for different states when it was first built, and it did not become the "great" wall until the Qin Dynasty after the unification of China by Emperor Qin Shihuang, who succeeded in his effort to have the walls joined together to fend off the invasions from the Huns in the north.(3)”  Ever since then, the Great Wall has served as the monument of Chinese national pride.



One of the United States most formidable creations is Mount Rushmore.  The monument shows the faces of four American presidents: George Washington, Thomas Jefferson, Theodore Roosevelt, and Abraham Lincoln.  “South Dakota's Black Hills provide the backdrop for Mount Rushmore, the world's greatest mountain carving.  These 60-foot high faces, 500 feet up, look out over a setting of pine, spruce, birch, and aspen in the clear western air.  Sculptor Gutzon Borglum began drilling into the 5,725-foot mountain in 1927.  Creation of the Shrine of Democracy took 14 years and only cost one million dollars (13).”  In comparison to the Great Wall of China, this monument seems small.  However, the United States is still a relatively young country and has not faced invasions like the Chinese have in the past.  The mountain is a symbol of the freedom the country is built around and the great leadership that it has cultivated.



Comparing the Great Wall of China to Mount Rushmore by size alone would not be right.  The two are not even close in size, but the spirit behind them stands equal.  The Great Wall is a symbol of unity throughout China, it shows how different dynasties of kings were able to work together in order to build a massive monument to its peoples ingenuity.  It also had the important function of protection.  On the other hand, Mount Rushmore shows the American pride taken in its leadership.  It does not serve to protect its people from any harm, but it shines as a beacon of influence and is celebration of greatness.  Something both of these great symbols share.

China has long been a planned economy, but things have changed in recent decades.  The dismantling of the planned economy system in China began in 1978.  The reform has included reform of the economic system, labor service, commodity, capital, and technology markets (5).  The planned economy has been transformed into a socialist market economy system.  Stricter regulation of the market combined with a reduction in the planned products has allowed businesses to take more of an active role in the business side, instead of simply providing production capacity (5).  Now they can organize their markets and has ultimately created public ownership of commerce.  This is far beyond the tightly planned economy that once ruled China.  However, it is not a complete jump towards a true market economy.  China has made sure to keep a close eye on the system in order to prevent it from getting out of control. 

Before the reform and opening of the economy began, prices for goods sold in the market were decided by the Chinese government.  Now there are three types of pricing that are allowed by the new system.  First is the old fixing of price by the government, second is state guiding prices, and third market regulatory prices (6).  Supply and demand are now the main forces behind price setting.  This has created a more competitive market, where businesses can sell their goods at a more profitable price.  The governments easing of the price restrictions shows a new direction for the country, they are becoming more open to the outside world and wish to be competitive in other markets.  In order to do so they have tried their best to maintain a socialist view, while taking part in the world economy.  Clearly the Chinese do not believe in the United States ideal of world capitalism, but they have taken steps towards gaining a foothold on their competition (7).  They do not want to radically change their system too quickly because they have seen the effects of the “big bang” model and it has not worked well for other countries like the former Soviet Union.  The result is a slow paced transition to the market without a complete overhaul of the system.  Furthermore, it allows China to keep its traditions alive and the government can also remain in control of the economy.


One of the largest changes due to the reform is the expanded capital market through improvement of the credit and loan mechanism, and developing stock and state debt markets (8).  “At the beginning of the 1980s, the reform of the credit and loan mechanism, beginning with a unified plan, multi-level control, connection of deposits with loans, and being responsible for making up differences developed in accordance with the ratio between assets and debts, and eliminating the limits for the sizes of loans.  In order to match this important change, new measures have been adopted, such as re-granting loans, re-discounting, reserve fund rates and making market business public, thus standardizing and strengthening the control and adjustment of the credit and loan market.  At the same time, the stock market grew from nothing to become a large-scale stock market, symbolized by the Shanghai and Shenzhen stock exchanges (8).”  The move towards creating large markets has allowed China to stay competitive in the world economy.  They have opened up their markets to outside trading and this gives them the ability to sell their goods throughout the world and produce greater capital.  Their production decisions are now made according to the market demand, and this also gives firms an advantage that they did not have in the planned economic system.  Now profits can be aimed for according to supply and demand instead of government regulations.  The market system does not drive China’s economy on its own, but they have implemented enough of the system to create a major change in the way decisions are made by firms and the amount of profits they will take as a result.

“The United States economy is marked by steady growth, low unemployment and inflation, and rapid advances in technology (11).”  The system that the economy flourishes under is market capitalism.  The system provides private ownership of firms which make their own decisions on production according to the market.  If the market changes, the firms can adjust to meet demand.  Unlike other countries throughout the world, the United States was founded by immigrants, and has kept that tradition alive by allowing others to come and join the country in its global domination.  The economy feeds off of immigrants because they take the low end jobs.  With the labor they supply, the country is able to run fairly smoothly.  In turn, they are given the chance to have a better education, better quality of life, and as their generations go on they will eventually join the upper ranks in the earnings category.  At least, this is the promise of capitalism and democracy. 


“The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $36,200.  In this market-oriented economy, private individuals and business firms make most of the decisions, and government buys needed goods and services predominantly in the private marketplace. (11)”  The US government allowed businesses much more freedom in choosing their models of production, hiring, pricing, etc.  This comes at a cost though, since competition in the US is so steep, there are greater barriers to entry and it is harder to be successful.  “Technology is a driving force behind the American economy, and the onrush of technology has created a gradual development of a "two-tier labor market" in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits (11).”  But the system has provided benefits that have trickled down throughout the different tiers of the economy.  Healthcare in the US is some of the best in the world due to the technological edge that competition has spurred.  People at the bottom also are given the opportunity to increase their education, investment in human capital is a primary source for the United States economies fast growth pace.  People are always looking to improve their ability to earn more and education provides an outlet to create a more productive future.

Reform of the US economy comes primarily in the form of tax raising or relief, change of the interest rate by the FDIC, and the change in government spending habits with each year.  The economy is purely capitalist and the prices are determined by supply and demand.  Output is decided by each firm in accordance with demand for the product.  Stock markets are also an important part of the economy.  The New York Stock Exchange, NASDAQ, American Stock Exchange as well as a few others are outlets for public companies to offer traders a chance to purchase a stake in the company.  This in turn generates capital.  The US has one of the most active trading stock market systems in the world. 


Communications is one of the largest growing sectors in the world.  It also happens to be one of the most important parts of a successful economy.  With the increase in trading going on in the market systems, and the world trade scene opening up to almost everybody, communication has become the forefront of the revolution in bringing markets together.  “By the end of 1999,  China’s total mobile telephone exchange capacity had reached 160 million users, and the number of mobile telephone users had reached 43.24 million, making China the third-largest market for mobile phones in the world.  The total number of telephone users in China reached 110 million in 1999, accounting for 13 percent of the nations population, while the percentage in 1978 was 0.38 percent; and in urban areas, the percentage in 1999 was 28.4 percent, while in 1978 it was only 1.9 percent.  In rural areas, 79.8 percent of the administrative villages now have telephones.”  This is impressive growth considering the amount of time it has taken for the wireless revolution to begin.  The world is seeing amazing growth in this sector as people are turning in their telephone lines to join the cell phone user community.  Businesses have all realized the importance of a main telephone line, this has created a solid base for telecommunications companies to gain clients.  It has also allowed companies to keep in touch with their own clients much easier, and to increase sales at a high rate.  “The United States boasted 194 million main telephone lines in use in 1997.  The mobile cellular phone usage in 1998 was 69.209 million, since then it has grown and will soon outnumber the main line usage (10).”  In comparison to China, a larger percentage of the population in the US has access to a phone and the market for cellular phones is also much larger.  The telecommunications industry in the United States is the most advanced in the world.  China still has areas where telephones are not in every home, and are also not readily available.  Throughout the US communication is easily accessible through telecommunications companies that service local areas.  China will eventually catch up to the US in terms of their communication capacity, and it has proven to be an essential part of both economies success.

Both the United States and China use market systems in their economies, however the United States is capitalist and China is using a socialist market economy.  The basic difference between the two is that in the United States, businesses are the ones who decide how to react to the market.  This includes price, output, use of labor, etc.  In China, the government still has its hand in the planning of the system, but not as much as it would if they were still using a planned economy.  The Chinese government has eased its domination over decision making through introducing significant reform over the last decade and a half but has been careful not to let things slip out of control.  While both economies are different, they both yield world leading numbers in terms of revenue and output.  As they begin to trade more with each other and the Chinese also open themselves to other markets, both countries will see further increase in their economic capabilities.  The first steps have been taken by allowing China into the world trade organization, a step in the direction towards creating a world market where everyone can take part and benefit. 


Works Cited


















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