Here’s a letter to the Wall Street Journal.
Editor:
Your reporters portray China’s economy generally, and its large trade surplus in goods specifically, as evidence both of that country’s economic might and of its economic threat to other countries (“China’s Trade Surplus Tops $1 Trillion, Underscoring Its Export Dominance,” December 8.) This report, alas, lacks perspective as well as economic understanding.
First some perspective. Chinese per-capita income ranks 93rd in the world, lower than countries such as Belarus, Kazakhstan, and Uruguay. China’s per-capita income is less than a third of U.S. per-capita income, which ranks 13th in the world, behind mostly very small countries such as Monaco and the Cayman Islands. And while China manufactures more goods than does any other country – with the U.S. being second – on a per-capita basis the U.S. produces 160 percent more manufacturing output than does China.
Even more impressive is this reality noted by David Hebert and Peter Earle (emphasis added):
In 2020, the year of China’s most recent census, over 120 million people were working in the manufacturing sector. Later, independent reports have the Chinese manufacturing workforce at over 212 million people. This means that the average Chinese manufacturing worker generates between $22,028 and $38,916 in value-added. By comparison, America employs just 12.7 million manufacturing workers, which is 6-10.6% of the number of manufacturing workers that China employs. On average, US manufacturing workers generate $229,133, which means our workers are between 6 and 10 times as productive as the average manufacturing worker in China.
Now some economics: China’s large trade surplus means that that country is a net investor abroad and that global investment funds are flowing less to China than to other countries, including the United States. (Pres. Trump and other trade skeptics have yet to explain why we Americans should worry about our economy being so attractive to global investors.)
If China’s economy were truly the world-beating, destined-to-swallow-all-other-economies goliath that many people suppose it to be, global investors would be shunning the U.S. and other countries as they flood China with funds. Yet in 2024 inward foreign direct investment in China was $116 billion, a mere 40 percent of the $292 billion of FDI in the U.S. in 2024. The per-capita comparison is even more stunning, with China in 2024 receiving $82 per person in FDI compared to the U.S. receiving $854 per person – more than ten times the per-capita FDI of China.
It’s true that the Chinese government is much more restrictive on inward FDI than is the U.S. government, but this reality doesn’t explain why there’s a net outflow from China of investment funds. And this restrictiveness itself suppresses Chinese economic growth.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
