What you describe as the essential point, though, isn’t static black and
white. The picture comes into better focus with historical and policy
perspective.

Sure, some of the Asian SWFs and Chinese state-owned
global-wannabe’s are willing to deploy their cash to buy up currently
undervalued US assets. Except for the scale of money involved now, how is that
fundamentally different from the late 80s and early 90s when the Japanese
leveraged their bubble-inflated balance sheets to buy up Manhattan trophy
properties and Hawaiian beachfront? Yes, the Japanese machine tool industry
bought up the detritus of the US industry when it was tanked but the US industry
came roaring back on its own with the help of Silicon Valley innovation.
Fundamentally,it was only when the Japanese focused on greenfields and giving
the US consumer something better than the US industry was able to provide (read
"Toyota and its supplier network") that the Japanese made permanent inroads on a
global basis.

So back to today and the Chinese. The Chinese will try to
deploy their capital to buy up undervalued assets. That’s capitalism and
Schumpeter ‘creative destruction’ at work. U.S. public opinion and CFIUS will,
with justification, limit the extent to which that’s allowed to happen in the
Chinese case, though, because of the non-transparency curtain behind which the
CCP government-hand pulls the strings (and pumps the coffers) of the state-owned
enterprises. In any event, it’s not as if the Chinese are on a great roll in
their global forays –their Wall St investments have been a disaster, Lenovo has
been losing out to Acer, Haier has disappointed, and even their resource-plays
in Latin America, Austrialia and Africa are all battling headwinds. The Chinese
may currently have the top 3 rated banks in the world but that is a fluke
circumstance of the moment which actually speaks most loudly about their
insulatedness from global competition and competitiveness.

The PRC’s
managed low exchange rate policy and their huge stakes in US Treasuries are
looking like deep holes the Chinese have dug themselves into. In the current
economy, though, we’re also in the same hole. The G2 question is whether we can
help one another get out of the hole together.

The real issue in my mind
is for a grand political bargain in which Western governments persuade China to
redeploy a large share of the latter’s currency reserves towards a
mutually-agreed upon and negotiated ‘global stakeholder’ objective still to be
defined. Candidates for what this could be are many — financing "Bretton Woods
II" institutions, combatting climate change, etc. Naturally, China will look for
national advantage in striking a grand bargain. Naturally, our job will be to
strike a good deal from our side in the grand bargain. Obviously, this means not
giving away the store. The deal will have to be one of statesmanship on both
sides, not a cave-in to neo-mercantilism. The U.S., though, has sixty years of
post-WWII experience in how to strike these kinds of bargains. The EU is Exhibit
1.

Yes, this is a new horizon (as seen from the bottom of a hole) with
some traces of the colors of an Eastern dawn But, no, the sky is not falling.