China's Economy Is Not Overtaking America's

• Date: 01 June 2020
• Published date: 01 June 2020
• DOI: http://doi.org/10.1111/jacf.12401
• Author: Michael Beckley

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IN THIS ISSUE:

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VOLUME 32

NUMBER 2

SPRING 2020

APPLIED

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Journal of

10 China’s Economy Is Not Overtaking America’s

Michael Beckley, Tufts University and American Enterprise Institute

24 An Honorable Harvest: Universal Owners Must Take Responsibility

for eir Portfolios

Frederick Alexander, The Shareholder Commons

31 Global Public-Private Investment Partnerships: A Financing Innovation

with Positive Social Impact

Patrick Bolton, Columbia University, Xavier Musca, Crédit Agricole Group, and

Frédéric Samama, Amundi Asset Management

42 Columbia Law School Roundtable on e Future of Capitalism

Panelists: Sir Paul Collier and Colin Mayer, University of Oxford; Alan Schwartz,

Guggenheim Partners; and Steve Pearlstein, George Mason University.

Moderated by Kristin Bresnahan, Millstein Center, Columbia Law School.

64 Sustainability at Walmart: Success over the Long Haul

Katherine Neebe, Walmart

72 How One Company Drives Ownership Behavior To Innovate and

Create Shareholder Value: e Case of Varian Medical Systems

J. Michael Bruff, Varian Medical Systems, and Marwaan Karame, Fortuna Advisors

78 Attracting Long-Term Shareholders

Sarah Keohane Williamson and Ariel Babcock, FCLTGlobal

85 Embedding Sustainability Performance and Long-Term Strategy

in the Earnings Call

Kevin Eckerle and Tensie Whelan, New York University Stern School of Business,

and Brian Tomlinson, Chief Executives for Corporate Purpose

100 Using the Return on Sustainability Investment (ROSI)

Framework to Value Accelerated Decarbonization

Kevin Eckerle and Tensie Whelan, New York University Stern School of Business, Bryan DeNeve

and Sameer Bhojani, Capital Power, and John Platko and Rebecca Wisniewski, ALO Advisors, LLC

108 “Non-Financial” Is a Misnomer, but Doesn’t Have to Be a Missed Opportunity

Gail Glazerman and Jeff Cohen, Sustainability Accounting Standards Board

117 A Preliminary Analysis of SASB Reporting: Disclosure Topics,

Financial Relevance, and the Financial Intensity of ESG Materiality

Cristiano Busco, University of Roehampton and LUISS University, Costanza Consolandi,

University of Siena, Robert G. Eccles, University of Oxford, and Elena Sofra, LUISS University

10 Journal of Applied Corporate Finance • Volume 32 Number 2 Spring 2020

e reason is that China’s economy is big but inecient.

It produces vast output but at enormous expense. Chinese

businesses suer from chronically high production costs, and

China’s 1.4 billion people impose substantial welfare and

security burdens. e United States, by contrast, is big and

ecient. American businesses are among the most produc-

tive in the world; and with four times fewer people than

China, the United States has much lower welfare and secu-

rity costs.

GDP and other standard measures of economic heft

ignore these costs and create the false impression that China

is overtaking the United States economically. In reality, China’s

economy is barely keeping pace as the burden of propping

up loss-making companies and feeding, policing, protecting,

and cleaning up after one-fth of humanity erodes China’s

stocks of wealth.

e persistent U.S.-China wealth gap means that the two

countries are not destined for hegemonic rivalry, as many

scholars argue. China will not be able to aord a full-scale

challenge to American primacy, so the greatest risk of a U.S.-

China war stems from the reckless escalation of a local crisis

in East Asia, not a global power transition. Instead of gearing

up for a new Cold War, the United States should take more

pragmatic steps to bolster the East Asian balance of power and

reinvigorate the U.S. economy.

e persistent U.S.-China wealth gap also undercuts the

Trump administration’s argument that the United States has

been losing economically to China and therefore needs to

bypass the WTO, slap taris on Chinese goods, and decouple

the U.S. and Chinese economies. Yes, China cheats on some of

its trade commitments and engages in rampant espionage and

intellectual property theft, and the WTO is ill-equipped to

punish these actions consistently. But the biggest challenge to

American workers and the companies that employ them may

well be coming from the U.S. government’s failure to make

large enough investments in job training (including hiring

and wage subsidies), infrastructure, research and development,

and support for working families. Boosting investment in

these areas would allow the United States to protect Ameri-

can workers and preserve U.S. economic dominance without

resorting to ruinous protectionism.

hina’s economic growth over the past three decades has been spectacular, even

miraculous. Yet the veneer of double-digit growth rates has masked gaping liabilities

that limit China’s ability to close the wealth gap with the United States. China has achieved

high growth at high costs, and now the costs are rising while growth is slowing. As I explain

in a recent book, data that accounts for these costs reveal that the United States is several

times wealthier than China, and the gap appears to be growing by trillions of dollars every

year.1This conclusion may surprise many people, given that China has a bigger GDP, a higher

investment rate, larger trade ows, and a higher economic growth rate than the United

States. How can China outproduce, outinvest, and outtrade the United States—and own

nearly $1.2 trillion in U.S. debt—yet still have substantially less wealth?

by Michael Beckley, Tufts University and American Enterprise Institute*

China’s Economy Is Not Overtaking America’s

C

*This essay is adapted from Chapter 3, “Economic Trends,” in Unrivaled: Why Amer-

ica Will Remain the World’s Sole Superpower, by Michael Beckley. Copyright (c) 2018

by Cornell University. Used by permission of the publisher, Cornell University Press. All

rights reserved.

1 Michael Beckley, Unrivaled: Why America Will Remain the World’s Sole Super-

power. (Ithaca, N.Y.: Cornell University Press, 2018).