America and Japan Approach a Rising China

America’s post-Cold War China policy was premised on the hope that multidimensional engagement with Beijing would result in a strong, rich, peaceful, and democratic China. Almost two decades later, America’s attitude toward China reflects the fear that engagement has led instead to a China that is indeed stronger and richer, but still authoritarian. It appears increasingly likely that China will use its growing power to challenge American leadership in Asia. The United States and Japan can meet this challenge through greater military cooperation and by strengthening and supporting democratic ideals.

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Sara Segal-Williams
Topics: 
Politics

Chinese Shadows

In 1920 a young Chinese poet named Guo Moruo published a poem called “The Sky Dog,” which begins:

Ya, I am a sky dog!
I have swallowed the moon,
I have swallowed the sun.
I have swallowed all the planets,
I have swallowed the entire universe.
I am I!

Chinese Nuclear Forces and U.S. Nuclear War Planning

China and the United States have been aiming their nuclear weapons at each other for decades, but now—with the absence of a definitive enemy such as the Soviet Union—the United States has elevated China to fill the void to help justify modernizing its armed forces in general, and its nuclear forces in particular. China, too, uses the United States as a rationale for modernizing its forces, and the two nations are becoming increasingly locked into a pattern of action-and-reaction reminiscent of the Cold War. To better understand the nuclear relationship between China and the United States, the dynamics that drive it, and its potential consequences, we first examine Chinese nuclear forces in some detail, including their past development, their current status, and what future programs are underway according to the U.S. government's assessments and other sources. We then provide a history of U.S. nuclear targeting of China—although much is still shrouded in secrecy, and conclude by simulating two hypothetical nuclear strike scenarios that are likely to be close approximations of actual war plans: a U.S. strike against Chinese intercontinental ballistic missile silos and a Chinese strike against U.S. cities.

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Topics: 
Military

What’s Driving Investment in China?

Investment has grown rapidly in China in recent years, reaching more than 40 percent of GDP. Despite good progress on bank and enterprise reforms, weaknesses remain that could contribute to inefficient investment decisions. Manufacturing, infrastructure, and real estate have been the drivers of fixed asset investment. Econometric analysis presented in the paper suggests that manufacturing investment is strongly correlated with firms’ liquidity, largely retained earnings. Analysis of residential real estate investment shows that it is weakly correlated with real household income growth and real mortgage interest rates. A policy implication of these findings is that reducing liquidity in firms, for example by requiring state-owned enterprises to pay dividends to the government, and using monetary policy to reduce liquidity increase real interest rates, would slow investment in manufacturing and real estate.

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Sara Segal-Williams
Topics: 
Economy

Can Good Events Lead to Bad Outcomes? Endogenous Banking Crises and Fiscal Policy Responses

A study of the impact of labor market restructuring and foreign direct investment on the banking sector, using a dynamic general equilibrium model with a financial sector. Numerical simulations are performed using stylized Chinese data, and bank failures are generated through increases in the growth rate of the labor force, a revaluation of the exchange rate or an increase in debt issue to finance the government deficit, as compared to a benchmark scenario in which banks remain solvent. Thus bank failures can result from what might seem to be either beneficial economic trends, or correct monetary and fiscal policies. The authors introduce fiscal policies that modify relative factor prices by lowering the capital tax rate and increasing the tax rate on labor. Such policies can prevent banking failures by raising the return to capital. It is shown that such fiscal policies are, in the short run, welfare reducing.

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Topics: 
Economy
Keywords: 
Banking