The wrath of China: one more reason to raise the debt ceiling

Picking up on a story from last month, I’d like to look at a couple points on U.S.-China relations. First, there’s this:

New economic analyses of China provide further indication that the nation’s supercharged economy is beginning to slow, and warn that soaring inflation, rising labor costs and mounting local government debt threaten to weaken growth even more. [snip]

Since the financial crisis, China has been the world’s leading growth engine. But for much of the past year, China has been trying to rein in overly aggressive bank lending as way to tame soaring inflation and property prices.

Those tightening measures have not only weakened growth in China, analysts say, but have also begun to expose a host of other problems in the nation’s financial system.

And the health of Chinese financial markets only begins to tell the story of the cost China’s rapid development. Massive seasonal migration, a faltering infrastructure, environmental degradation, and labor unrest are all products of China’s “go fast” approach to economic policy. With such a premium on speed of development, lack of political accountability, and systemic cronyism, cheap and ineffective solutions are created in an attempt to maintain the economic engine. The fast but uneven growth creates a class of people who demand products and services that most Chinese cannot afford.

The reason for this policy is that the Chinese Communist Party’s legitimacy derives almost solely from economic growth — and it has been this way ever since Deng Xiaoping took over as paramount leader in 1978. A regime that looked to social ills not through a lens of maintaining popular support, but through the lens of public welfare, would probably require a greater democratic component. But with large quantities of economic resources, especially raw materials and labor, so fundamentally connected to regime survival, China’s policies — both domestic and foreign — will set aside almost any other concern. It’s hard to see how they will voluntarily change this approach.

It’s important to look at the debt ceiling debate in this light. A default on U.S. debt, while of course being a catastrophe for Americans, would also be a horrible blow to China. Some Chinese, being no stranger to conspiracy theories, probably think this is part of a scheme to bankrupt the rising country’s coffers and stymie its entry onto the world stage. Actual default would cause irreparable damage to U.S.-China relations and would hugely discredit democratic capitalism to Chinese politicos.