China’s economic influence is skyrocketing
China’s in a pretty sweet negotiating spot right now. Europe and America need their cash to finance rescues/bailouts/stimuli. Their once-lackluster sway over western nations is suddenly through the roof. This was especially evident today, when Chinese Premier Wen Jiabao said they are “worried” about holdings of Treasuries and wants assurances that the investment is safe.
That’s a scary statement. It’s highly unlikely that they’d dump large amounts of dollars and/or US bonds. That would cause a flood of selling and crash of the dollar, which would suck for everyone. But if they just stop buying debt, that alone could be a catastrophe. The only thing the dollar has going for it is that the Euro and British pound are also in trouble, and arguably worse-off.
It kind of reminds me of the US after WW2. Europe and Japan were destroyed, and desperately needed cash to rebuild. We loaned a lot of it to them. Then we emerged as the Superpower, with influence and power that dwarfed another nation’s. China’s rise won’t be as quick and drastic as ours was, from what I’ve seen. But power does seem to be inevitably shifting eastward.
3 Comments
But don’t they need us to buy their stuff?
I don’t see how they can allow our economy to crash without crashing their own economy in the process. If they don’t buy our debt, we go belly up. And if we go belly up, they won’t be talking about diminished growth in Beijing at only 4%…they’ll be talking about economic contraction and, possibly, social unrest.
Am I missing something?
Nope, that’s a valid point Scrub. But they’re in the process of shifting gears in their economy to make it more domestically-based.
And I think they’re starting to realize that the whole scheme is flawed – they give us money to buy their own goods.
First off, China has been in a good negotiating spot for years simply because of the debt that they continued to buy up. It is probably a better negotiating spot right now, but that does not mean its better for them because they now realize that there is a possibility that their investment in American securities might not go as planned because we are spending so much money. More bonds were just issued and this time the Fed bought them, which is going to lead to sharp declines in the USD and U.S. securities. China is definitely still in the better position, but everything isn’t dandy for them just yet. As for the point about funneling that money back into their own economy instead of loaning it to us- that is true and it is something that is often overlooked by the Keynesians who insist on continuing this massive spending.