China vs. USA

2005

Why Russia Lost the Cold War

The Soviet Union lost the four-decade cold war in 1991. The US and its Western allies won the cold war due to economic superiority. Economic superiority provided the wealth to fund the arms race, foreign aid, proxy wars and other cold war strategies. The economic benefits to western consumers provided an additional wedge. The Berlin Wall kept people from escaping the Soviet bloc as it fell behind. Ultimately, the Soviet Union was not able to match the US on both the military and economic front causing the empire to falter and fail in 1991.

The ultimate power of a superior economic system is a lesson the US should remember.

The Crouching Tiger is Growing Rapidly

China has been growing at a torrid pace, 8% annually for the last 25 years. China’s current rate of growth is double the US. The World Bank and IMF calculate the size of the Chinese economy adjusted by Purchase Power Parity (PPP) at $7.1 Trillion versus $11.6 Trillion for the US economy.

China’s goal is to catch up economically with other world powers. In May 2005, Chinese President Hu Jintao stated China’s aim is to lift the size of its economy to $4 trillion by 2020 — effectively quadrupling its gross domestic product of five years ago. China’s GDP on a PPP basis could match the US within 20 years as suggested by a recent Economist forecast.

China is already translating its economic prowess into military terms.

When Will China’s Military Match the US?

China currently has standing armed forces of 2.1 million exceeding the US forces of 1.4 million. By all other measures, the US has dramatic military superiority. US military spending at $ 430 Billion in 2004 exceeds Chinese military spending of $ 80 B (adjusted for PPP). Chinese military spending as adjusted for PPP varies widely according to RAND, the Department of Defense and others. RAND in a government-funded study estimated Chinese military spending would reach 40% of US military spending in 2025. The 2004 US Department of Defense report estimated a range of $ 160 to $ 250 Billion for China.

Sec. of Defense Rumsfeld said in June that China’s defense expenditures are much higher than Chinese officials have published. “It is estimated that China’s is the third-largest military budget in the world, and clearly the largest in Asia,” Rumsfeld said in a speech to Asian defense leaders in Singapore. Defense officials estimate China spends two to three times more than it admits on defense, leading U.S. officials to believe China has one of the largest defense budgets in the world, and by far the largest in Asia.

There seems little doubt based on various US reports; China has its sights set on being competitive with the US on a military basis.

How Will the US Fare in the Next Arms Race?

US military strategy has been based on concepts like first-strike capability, overwhelming superiority and maintaining expensive technology leads. Nearly half the military spending on the planet has been by the US over the last decade. Our incredible economic advantage has allowed us to maintain this military edge, a high standard of living and the unique status of the only superpower.

As the size of the Chinese economy approaches parity with the US and Chinese military spending and technology become a competitive factor; the extravagant health care system in the US will become an Achilles heel.

China spends 5.5% of GDP on health care currently, one-third of current US expenditure of 16% of GDP. Federal projections show national health care expenditures hitting 20% of GDP in a decade. This is several times our military spending.

If China were to instigate an arms race, Congress and the President would find their budgetary options compromised by the health care juggernaut.

This is just one more reason our country should address our unsustainable health care system instead of waiting until we have a crisis.

Sources:

RAND, “Modernizing China’s Military: Opportunities and Constraints” (ISBN: 0-8330-3698-X)

American Forces Press Service, “Chinese Military Power Report Addresses U.S. Concerns” By Kathleen T. Rhem, WASHINGTON, July 20, 2005

2006

While US leaders fiddle, Chinese leaders build a global powerhouse. Two very differing reports from each side of the Pacific Ocean were unveiled recently.

US Health Care Spending Continues Unabated

First CMS, which issues the annual US report on health care spending and projections, issued its annual report:

“U.S. health care spending by 2016 will almost double to $4.1 trillion and account for 20% of every dollar spent, according to a report released on Wednesday by the National Health Statistics Group at CMS, the Los Angeles Times reports. According to the report, published on the Health Affairs Web site, public and private health care spending will increase to about $12,782 per capita by 2016 from about $7,498 per capita in 2006 (Alonso-Zaldivar, Los Angeles Times, 2/21).”

American leaders took note and issued warnings:

Secretary Mike Leavitt said, “America’s per capita health spending is the highest in the world. There is simply no place on the economic leader board for a nation that spends a fifth of its domestic product on health care” (Freking, AP/Houston Chronicle, 2/21).

Robert Bixby, executive director of the Concord Coalition, said that the cost of health care “is really the key issue for the fiscal future of the nation,” adding, “If health care costs continue to drift up — unless you dramatically raise taxes — you will have health care pushing out everything else the government does. Nobody can say exactly when you reach a point that it’s unsustainable, but you can look at something and say it’s unlikely.”

Chinese Military Spending Increases Dramatically

On the other side of the Pacific, the Chinese government announced another in a long series of increased military spending:

China will raise its annual defense spending by almost 18 percent, the Chinese government announced Sunday, as the country continues a rapid military buildup that has drawn criticism from the United States.

Chinese defense outlays would increase by 17.8 percent to 350.92 billion yuan, or $45 billion, this year. The budget represents the largest increase in military spending in five years. The sharp rise in military outlays follows a 14.7 percent budget increase in 2006 as the People’s Liberation Army tries to streamline its massive ground forces and deploys new warships, missiles and aircraft.

Military analysts said that the Chinese military was reaping the benefit of sustained spending increases.

They noted the successful test of the anti-satellite missile, which destroyed a defunct Chinese weather satellite, as evidence that the Chinese military was able to field increasingly advanced weaponry. The Chinese military revealed in December that it had begun to deploy a state-of-the-art jet fighter, the J-10, which Chinese and foreign experts have described as a breakthrough for the Chinese defense industry.

Who will win the Arms Race – China or the US?

A year ago I wrote about the contrasting trends of US health care spending and the forecast for China to supersede the US economy in size by 2020(Feb. 14, 2006 post). These forecasts were all based on a forecast by the US Government and respected conservative sources such as The Economist.

A year has passed and it appears the trends continue but the arms race appears to be accelerating with China upping the ante on their military spending.

The question remains. Who will win the next arms race – China or the US?

As US health care spending relentlessly increases other spending choices are and will continue to be reduced. Already state governments are reducing spending on education as they fight the losing battle of paying for increased health care costs.

Currently, the federal government is coping with deficit spending. This new federal budget proposes to reduce health care spending, but this would merely shift health care costs to the states and private sector. No measures are proposed that would control overall health care expenditures nationally.

Uncontrolled health care spending is the Achilles heel of the US economy and world power status.

It is time for our leaders to lead.