China vs. America: A Comprehensive Review of the Economic, Technological, and Military Factors

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The New American Cold War Against China

Over the last year I gradually became familiar with Chas Freeman, one of America’s most distinguished professional diplomats and a longtime expert on China. Despite his illustrious career, he had rarely appeared anywhere in our mainstream media, but once I discovered his interviews on several YouTube channels, I was extremely impressed by the depth of his knowledge and analysis, so I published an article presenting his views.

In one of his public lectures, he suggested that America’s new Cold War against China had many similarities to our previous conflict against the USSR, except that this time we were playing the role of our old vanquished adversary, an analogy I had frequently expressed myself:

In international affairs, as in physics, for every action there is an equal and opposite reaction. Our actions have stimulated China to mirror, meet, and match our military hostility to it. We are now in an arms race with China, and it is far from clear that we are holding our own…

Despite China’s remarkable military buildup, Beijing has so far kept defense spending well below two percent of GDP. Meanwhile, cost control continues to elude the Pentagon. DoD has never passed an audit and is infamous for the waste, fraud, and mismanagement that result from its reliance on cost-plus procurement from the U.S. equivalent of profit-driven state-owned enterprises – military-industrial corporate bureaucracies whose revenues (and profits) come entirely from the government. The U.S. defense budget is out of control in terms of our ability to pay for it.

Four decades ago, the United States bankrupted the Soviet Union by forcing it to devote ever more of its economy to defense while neglecting the welfare of its citizens. Now we Americans are diverting ever more borrowed and taxpayer dollars to our military even as our human and physical infrastructure decays. In some ways, in relation to China, we are now in the position of the USSR in the Cold War. Our fiscal trajectory is injurious to the general welfare of Americans. That, along with our liberties, is, however, what our armed forces are meant to defend.

Around that same time, someone else brought to my attention some of the YouTube channels created by Westerners who documented their travels to various foreign lands including China, or those who had actually moved to that country and were living there. I was fascinated to discover the existence of such widespread sources of personal, first-hand information about the reality of life in that enormous country, including both its huge cities and its small rural villages. After spending a couple of days viewing dozens of such videos, I published an article presenting some of my conclusions:

From the late 1970s onward, my predictions for China’s future development had always been far more optimistic than those of anyone else whom I knew, but nonetheless I have been staggered by the astonishing scale of that country’s achievements over the last 45 years…

Consider that in 1980, the Chinese population overwhelmingly consisted of desperately impoverished peasants, far poorer than Haitians. And compare that recent past with those videos of China’s enormous, futuristic cities, now among the most advanced in the entire world, with nearly all of those gleaming, towering edifices constructed in just the last two or three decades. Obviously, nothing like this has ever previously happened in the history of the world…

As a child, I occasionally visited Disneyland, and one of the popular early attractions of that pioneering theme park was Tomorrowland, depicting the urban wonders that our future would hold. But as far as I can tell, few if any of those developments ever occurred in our own country, with California’s aging, increasingly decrepit freeways merely becoming much more congested than they were a half-century ago, and America lacking even a single mile of high-speed rail. Meanwhile, the scenes of China’s magnificent cities seem exactly like what Walt Disney had originally envisioned, but filled with far more greenery and nature areas and constructed on a scale ten-thousand times larger.

The greatest factor behind China’s tremendous success had obviously been the high ability and hard work of the Chinese people, together with the clear competence of their government and its leadership:

For decades, international testing has shown that China has the world’s highest average IQ, and this finding has dramatic implications at the top end. As physicist Steve Hsu pointed out in 2008, international psychometric data indicates that the American population probably contains some 10,000 individuals having an IQ of 160 or higher, while the total for China is around 300,000, a figure thirty times larger.

Over the last couple of generations, respectable American intellectual circles have severely anathematized this controversial topic, but scientific reality exists whether or not our elites choose to pretend otherwise. Indeed, these racial and evolutionary factors regarding the Chinese people have been completely obvious to me for nearly the last half-century, and such factors largely explained my confident expectations of China’s rise, expectations that have been proven entirely correct.

A central point of that second article had been that China’s greatest resource was the large number of its highly-intelligent and well-educated citizens. As it happens, one such individual named Hua Bin had recently begun reading our website, and he left a favorable comment describing his own perspective.

…As a Chinese, I have already tuned out the dishonest western media when it comes to reporting on China (or any adversarial countries for that matter). I used to read NYT, WSJ, FT, the Economist, etc almost on daily basis, especially their reports on China, for at least 2 decades. But since 2017 or so, the bias in the reporting has become epidemic, even laughable. Now I receive most of my news from the so-called alternative media…

I myself certainly serve as a living proof of the vast changes that have happened in China – I was earning an income 6,000 times of my first job after college in 1993, when I retired 6 years ago. And no, I wasn’t a business owner either. I’d love to share some insights from an authentic local Chinese perspective.

When I checked, I discovered he’d left another favorable comment last month on one of my previous China articles, in which he had emphasized the positive traits inculcated by the Confucianist thought that has traditionally played such a central role in Chinese culture:

…One critical thing to know about China is the importance the country and its population attach to the concept of meritocracy and virture in personal behavior, economic life, and governance. This is the ideal to aspire as taught by Confucius since 500BCE. Just like the Bible, Confucius thoughts is a guide to the Chinese nation for the last 2500 years. Unlike the Bible, it is still a required part of the curriculum for every school child (except during the turbulent times of Cultural Revolution). The revival of Confucius teaching is a big part of the country’s success.

In his most recent comment, Hua also mentioned that he’d created a Substack in the last few weeks, and had begun writing various pieces on China’s economy, technology, and military preparedness against the U.S., providing links to several of these. On that Substack, he described himself as a retired business executive and geopolitical observer.

Once I began reading his posts, I was very impressed by his analysis and the wealth of detailed information he included, much of which was entirely new to me. His coverage of some of these important matters was quite extensive and he provided an important perspective I hadn’t previously encountered anywhere else. Therefore, we are republishing his Substack posts and adding him as a regular columnist to our website:

In addition, I’m excerpting major portions of his posts and aggregating them for this article, while retaining all his original bolding and without correcting his very minor typos.

Comparing the Chinese and American Economies

Given his business background, it’s hardly surprising that a number of his posts focused on economic matters, and these included his first, debunking the myth of Chinese underconsumption that has become so widespread among hostile Western leaders and the mainstream media outlets that function as their echo chambers. He began by emphasizing that many of the largest expenses for American consumers simply didn’t exist in China:

Very importantly, Chinese consumers spend far less on big ticket service items – rental (China home ownership is over 90% compared with 60% in the US), healthcare (largely free or heavily subsidized), and education (free public education all the way through university and graduate school).

He went on to provide a long list of important comparison points, many of which would probably surprise even well-informed Americans.

It’s not just Chinese consumers spend less to get same, they actually consumer quite a lot given the nominal per capita GDP is less than 20% of US:

  • China has the largest global retail goods sales, 20% larger than US, at dollar value without adjusting for purchasing power
  • China auto sales was 30 million units in 2023 compared with 15 million in the US
  • 13 million residential units were sold in China in 2023 (after 3 years’ negative growth) compared with 4 million sold in the US
  • China accounts for 30% global luxury goods sales, even in economic downturn, 2X of US
  • China is the largest outbound tourist country with 200 million outbound trips made a year
  • China leads the world in sales of mobile phones, LED TV, home electronics, sporting goods and a lot of other consumer goods by a wide margin
  • China consumers 1/3 of electricity generated in the world, reaching 8000 terrawatt hours last year compared with 4000 terrawatt hours for the US
  • China has surpassed the US in per capita daily calorie and protein intake
  • Chinese life expectancy is 78.6 compared with 77.5 in the US, when 18% of US GDP is in the healthcare sector and 7% in China
  • Chinese graduates over 5 million STEM college students a year verse 800,000 in the US
  • Chinese total household debt is $11 trillion vs $17.8 trillion in the US
  • Chinese total household savings is $2 trillion vs. $911 billion in the US
  • According to the Federal Reserve, 40% Americans cannot cover with $400 unexpected expense. I don’t know any comparable number for the Chinese

Based on data, I think it’s safe to argue Chinese consumers don’t underspend compared with global average or even over-consumption countries like the US. They certainly have a bigger cushion in the form of savings and much less indebted.

He freely admitted that one difficulty that China currently faced was finding suitable employment for large numbers of its college-educated youths, who are unwilling to work in the factories as so many of their parents had done. Therefore:

…there are 30 million unfilled manufacturing jobs in the country. As a result, China has the world’s highest adoption of robotics – 50% of all robots sold in the world is in China.

Meanwhile, American society has solved this same problem by providing an enormous number of highly-paid service jobs, but it’s unclear whether most of these actually create any net value for our society and our economy:

The US does produce a lot more service industry jobs (80% GDP) vs. China (55%). There is clearly more bankers, lawyers, accountants, consultants, insurance agents, PR specialists, stock brokers, computer programmers, real estate agents, health workers in the US. As a result, the average American consumes a lot more services offered by these professions. China produces more (manufacturing GDP at 32% GDP) than US (10%). Therefore, Chinese consumers buy a lot and the country also exports a lot.

A second myth that Hua addressed in a November post was that of Chinese “overcapacity.” But this actually amounted to a euphemistic Western way of admitting that its own business enterprises could not compete with those of China. Such accusations were often coupled with complaints that many Chinese businesses are state-owned rather than private.

However, as he pointed out, this criticism seemed logically inconsistent. America’s reigning neoliberal dogma had always maintained that government-owned enterprises were inherently inefficient and uncompetitive, so denouncing China for having many such state-owned enterprises that were successfully outcompeting private Western corporations merely demonstrated the bankruptcy of that ideological framework.

Instead, he argued that the ultimate ownership structure of such companies mattered less than whether the marketplace in which they operated was sufficiently competitive, and in many sectors such widespread competition was far more the case in China than in America:

While there is a mix of different types of ownerships (including fully foreign-owned like Tesla) in China, major players in these industries in the US are entirely privately owned.

In all these fields, China is pulling ahead or improving faster than the US for a critical reason – the marketplaces are simply more competitive in China. Ownership simply has no effect on enterprise/industry competitiveness.

In the electric automative sector, the US has one big player Tesla while China has BYD, Cherry, Great Wall, Nio, Xpeng, Li, Huawei, Xiaomi, and dozens more as well as Tesla.

In mobile phones, the US has one single player Apple while China has Huawei, Xiaomi, Honor, Vivo, Oppo, and also Apple and Samsung.

In ecommerce, the US has Amazon (with eBay at a distant No 2 with a fraction of Amazon’s market share) while China has Alibaba, JD, PDD, Douyin/TikTok Shopping and also Amazon and eBay (before they pulled out after losing the competition). Same is true for almost all other critical industries.

The secret of economic success is NOT ownership but rather the presence of competition (i.e. market). Competition leads to intense pressure to innovate, improve quality, and reduce costs. It leads to an expansion of capacity and scale as businesses try to compete and win. It leads to true meritocracy – i.e. may the best player win.

On the other hand, lack of competition leads to monopoly and stagnation as the players underinvest, pursue barriers against competition, and raise margins/prices. You can do an industry by industry analysis for US businesses and find out the level of concentration (thus lack of competition) very easily.

I would argue China is a far more market-oriented economy than the US in most industries. This is the underlying reason for China’s competitiveness and the so-called “overcapacity”. The US attempts to undermine China’s competitiveness will get nowhere because the Chinese do not buy into its self-serving “neoliberal” economic policies.

The severe consequences of such lack of market competition in America was most obviously apparent in the military sector. Thus, despite our gargantuan military spending, we have been completely unable to match Russia’s far smaller economy in producing the munitions being expended in the Ukraine war:

One interesting manifestation of the US problem with its monopolistic private sector is its inability to keep up weapons production to support the Ukraine war. Its military industrial complex is plagued with undercapacity, high cost, and low efficiency despite having the world’s largest military budget (by an enormous margin). The consolidation of the vaulted military-industrial complex into 5 giants has led to a lack of competition and accountability in most parts of the defence acquisition system. It has led to undercapacity and extreme high costs (of course high margins).

Today while these private defence contractors boast the highest revenue and market cap globally, the US cannot even produce sufficient basic ammunitions such as 155′ artillery shells let alone missiles, warships, fighters and other sophisticated weapons at scale. If the US cannot outcompete production against Russia, what is its chance against China, the world’s largest industrial powerhouse? China’s “overcapacity” issue is indeed a nightmare for the US.

A couple of days later, Hua published a post focusing on the GDP comparisons between China and the U.S. made by Western media outlets. These have always heavily favored the latter country, but he suggested that some of them were highly misleading.

First, he argued that the Chinese government had been entirely correct in bursting the country’s huge real estate bubble. By contrast, the American government had allowed its own similar housing bubble to grow unchecked prior to 2008, ultimately resulting in the devastating financial collapse of that year. He also supported the deliberate shift away from consumer tech and the deflation of the stock market bubble, policies that he argued had been beneficial despite their very negative portrayal in Western media:

However, the reality is that bursting the overpriced and over-leveraged real estate bubble is a necessity and arguably long overdue; consumer tech is absorbing too much resources and leading to short-sighted oligarchies and unsustainable wealth disparity; and the stock market is never a reliable indicator of either overall Chinese economic performance or individual business performance anyways. BYD, the EV maker, now trades lower than 5 years ago despite the fact it dethroned Tesla as the global EV leader in early 2024 and its sales have grown severalfold.

He went on to note that the headline GDP figures seized upon by Western media outlets failed to consider numerous crucial elements:

Ignoring the obvious difference in nominal market exchange GDP vs. Purchasing Power Parity GDP which puts the size of Chinese economy a third bigger than the US already, I have focused only on nominal GDP comparison for simplicity.

Here are some interesting factoids I uncovered (everything can be referenced from sources such as Statista, US Bureau of Economic Analysis, China National Bureau of Statistics):

1. Imputations: this refers to “economic output” that is NOT traded in the marketplace but assigned a value in GDP calculation. One example is the imputed rental of owner-occupied housing, which estimate how much rent you would have to pay if your own house was rented to you. This value is included in the reported GDP in the US. Another example is the treatment of employer-provided health insurance, which estimates how much health insurance you would pay yourself if it was not provided by employer. Again, this imputation is included in GDP calculation in the US.

As of 2023, such imputations account for $4 trillion in US GDP (round 14% of total).

In China, imputation to GDP is ZERO because China doesn’t recognize the concept of imputed/implied economic output in its statistics compilation. Too bad your house is not assigned an arbitrary “productive value” once you buy it in China

2. Construction: in the US, construction contributes to 4% GDP (roughly $1.1 trillion) while in China, construction contributes to 7% GDP (roughly $1.2 trillion). However, China pours the same amount of concrete in 3 years as the US did in the last century. China imported $128 billion worth of iron ore in 2022 and US imported $1.15 billion in 2021. China produced 1.34 billion tons of steel in 2022 vs. 97 million tons by the US in the same year. China built 45,000 km high speed rail in the past decade and US built none.

Considering all the ports, highways, bridges, apartment buildings China builds every year vs. the US, the almost identical construction value in GDP seems laughable.

This shows the non-sense of comparing US GDP vs China.

3. Professional services: services such as law, accounting, tax, insurance, marketing, etc. account for 13% US GDP ($3.5 trillion) while it accounts for 3% Chinese GDP ($0.5 trillion). There are 1.33 million lawyers in the US vs. 650,000 in China; 1.65 million accountants and auditors in the US vs. 300,000 in China; 59,000 CFAs in the US vs. 4,000 in China. 20,000 lobbyists are registered in Washington DC alone while China has no such profession. And of course, the pay for these jobs is much better in the US, ergo the higher GDP value. There are definitely more lawsuits, insurance transactions, annual tax auditing, and congressional lobbying happening in the US vs China. But it is unclear how that translates into national power.

4. Manufacturing and services: 38% of Chinese GDP comes from manufacturing and 55% from services. In the US, 11% and 88% respectively. Very literally, China is a much more productive force of “hard goods” while US is a post-industrial economy tilted overwhelmingly as a “soft goods” producer. If the day comes for a hot war between the two countries, China is far better prepared for a hard power confrontation.

As an example of the ridiculous factors behind these misleading Western GDP statistics, he pointed out some of the items that the British had chosen to include in their own GDP:

A side note, I also ran across some less wholesome facts when doing research on the subject. I refer to a Financial Times report just for a laugh. In 2014, UK started to include prostitution and illegal drugs in its GDP reporting to the tune of 10 billion pounds a year. This raised the reported UK GDP by 5% in an effort to help the government raise its debt ceiling.

To derive at this number, the statistics bureau had to make some assumptions: “The ONS breakdown estimates that each of the UK’s estimated 60,879 prostitutes took about 25 clients a week in 2009, at an average rate of £67.16. It also estimates that the UK had 38,000 heroin users, while sales of the drug amounted to £754m with a street price of £37 a gram.”

Thus, Western economists have adopted a bizarre framework in which rising levels of crime contribute to the official economic measure of national prosperity.

I strongly agreed with all of his arguments, and his telling point about how the service sector of an economy can be easily manipulated is one that I have previously emphasized as well. Certainly many service industries are absolutely legitimate, necessary, and valuable in a modern economy. But that sector can also be artificially inflated without limit by including the output of individuals who spend their days trading meme stocks or crypto currencies back-and-forth, or who hire each other as diversity-coaches. So I think it is quite enlightening to exclude services and compare the two economies by focusing entirely upon the productive portion of the GDP.

Moreover, although he conservatively relied upon nominal exchange rates in comparing the two GDPs, most analysts agree that the use of Purchasing Power Parity (PPP) statistics is much more realistic. If we combine these two approaches, the disparity between the real productive GDP of the two countries turns out to be enormous.

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