Don’t Be Afraid of China

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Feb. 12 (Bloomberg) -- Here’s what President Barack Obama could say in his State of the Union address:

China is rising. Income per capita is climbing steadily, and within 20 years, its share of world income will rival that of the European Union.

We shouldn’t be afraid -- or shrink from the economic opportunities this will present.

I remind those who fear that Chinese banks will take over our financial system -- or the world -- that people said the same about Japanese banks in the 1980s. Yes, China’s banks are becoming larger as the economy grows. They are becoming more international, too. These changes aren’t a threat.

In fact, the opposite is true: It is financial instability in China -- and in other parts of the world -- that is the greater worry. We need to make sure our system is strong and independent enough to withstand big shocks. I hope our regulators will continue to push for higher levels of equity capital throughout our financial system.

Others say that China will steal American jobs. This fear, too, is greatly exaggerated. More trade means more growth for all.

Nonetheless, China needs to be a more responsible partner. Allowing its currency to trade more freely -- and to appreciate -- in foreign-exchange markets would be good for the world economy and for the Chinese people.

China is an important market for us. Chinese consumers want our products. Chinese companies want to work with our companies. We can cooperate peacefully and fruitfully.

(Simon Johnson, a professor at the MIT Sloan School of Management as well as a senior fellow at the Peterson Institute for International Economics, is co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.” The opinions expressed are his own. This is one of 11 suggestions Bloomberg View columnists made for the foreign policy section of Barack Obama's State of the Union address. Read more here.)

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