China Is No Friend of the United States
Published in Izvestia
(Russia) on 14 October 2008
by Pavel Arabov and Petr Inozemtsev (link to
original)
While the global economic crisis is accelerating, Chinese statesmen are rubbing their hands: now is the right time to part with the U.S. dollar and make yuan a global reserve currency. One problem, however, persists: the greater part of ChinaÂ’s $1.8-billion gold currency reserves are invested in the U.S. government bonds. During the plenary session that ended on Sunday, the members of the Central Committee of the Communist Party of China (CPC) tried to decide how to tackle this situation.
Traditionally, plenary sessions of the CPC Central Committee are held behind closed doors, and the information about each plenary session – the most recent lasted four days – is released in a short communiqué. The communiqué from the latest session discussed in general terms the Politburo’s success and the “important decisions” concerning the agricultural development. Not much information was released to the public. Nonetheless, foreign mass media found out that the government of the country under heaven discussed not cows and bulls – but a more important issue: how to proceed during the time of the world economic crisis.
Debates on this issue have been going on for several years now. Influential protégés of the former President of the People’s Republic of China Jiang Zemin, known here as the Shanghai group, have always supported investing the $1.81 billion gold currency reserves in the American economy – for instance, in Freddie Mac and Fanny Mae securities. Even when these credit agencies went practically bankrupt and the entire financial system of the United States deteriorated, the Shanghai group continued insisting on buying the American companies that lost much of their values. But supporters of the General Secretary Hu Jintao and the Premier Wen Jiabao raised objections. China has no business saving the United States, they said, and we should instead invest our money in the economy of our own country. Judging from the decision of the plenary session “to support agriculture,” the Shanghai group lost in the debate.
Hence, a round of resignations in the Chinese government is likely to happen in the nearest future. Commentaries by Chinese officials support this conclusion. “National economy is capable of maintaining stable development,” but only under the condition that domestic demand will grow, the representative of China’s Central Bank declared on Monday. Therefore, the government’s main objective now is to reduce the percentage of exports in the country’s GDP, because one of the most important importers of Chinese exports is the United States of America, whose financial system is crashing. So what will happen now? Will China pull out its trillions and will the U.S. dollar collapse? Not so fast.
The decision to relinquish the dollar holdings was made two years ago, during the CPC Central CommitteeÂ’s closed-door meeting, noted Andrei Ostrovskii, Vice Director of the Far East Institute, Russian Academy of Sciences and Director of the Center of Economic and Social Research on China, but it was not easy to implement that decision. Now, however, during the global economic crisis China has an opportunity to do so.
All China needs to do is to curtail its dependency on its exports to the U.S., since ChinaÂ’s economy is quite strong. According to the Chinese Academy of Social Sciences, ChinaÂ’s GDP will grow by 10.1 percent in 2008, whereas inflation will decrease from 6.5 percent in 2008 to 4.5 percent in 2009.
Andrei Ostrovskii is confident that China will achieve its goals easily, even at a time of the world economic crisis.
The percentage of foreign direct investment in China’s economy is not more than 10 percent; the share of the exports to the United States in China’s total external trade does not exceed 20 percent. It is very easy to halve that share – China simply needs to redirect a part of its exports from the United States to South-East Asian countries. Therefore, Andrei Ostvoskii sees no threat to the Chinese economy.
Unfortunately, China will have to accomplish all this without its almost two trillions of dollars.
When it started negotiations with Taiwan about an arms sale, the United States practically sent China a signal. As a result, China will hardly be able to withdraw its money from the U.S. government bonds. Yet Russia has a new opportunity for cooperation with China, as these two countries can work together to retrieve their money from the United States, the scientist says.
Traditionally, plenary sessions of the CPC Central Committee are held behind closed doors, and the information about each plenary session – the most recent lasted four days – is released in a short communiqué. The communiqué from the latest session discussed in general terms the Politburo’s success and the “important decisions” concerning the agricultural development. Not much information was released to the public. Nonetheless, foreign mass media found out that the government of the country under heaven discussed not cows and bulls – but a more important issue: how to proceed during the time of the world economic crisis.
Debates on this issue have been going on for several years now. Influential protégés of the former President of the People’s Republic of China Jiang Zemin, known here as the Shanghai group, have always supported investing the $1.81 billion gold currency reserves in the American economy – for instance, in Freddie Mac and Fanny Mae securities. Even when these credit agencies went practically bankrupt and the entire financial system of the United States deteriorated, the Shanghai group continued insisting on buying the American companies that lost much of their values. But supporters of the General Secretary Hu Jintao and the Premier Wen Jiabao raised objections. China has no business saving the United States, they said, and we should instead invest our money in the economy of our own country. Judging from the decision of the plenary session “to support agriculture,” the Shanghai group lost in the debate.
Hence, a round of resignations in the Chinese government is likely to happen in the nearest future. Commentaries by Chinese officials support this conclusion. “National economy is capable of maintaining stable development,” but only under the condition that domestic demand will grow, the representative of China’s Central Bank declared on Monday. Therefore, the government’s main objective now is to reduce the percentage of exports in the country’s GDP, because one of the most important importers of Chinese exports is the United States of America, whose financial system is crashing. So what will happen now? Will China pull out its trillions and will the U.S. dollar collapse? Not so fast.
The decision to relinquish the dollar holdings was made two years ago, during the CPC Central CommitteeÂ’s closed-door meeting, noted Andrei Ostrovskii, Vice Director of the Far East Institute, Russian Academy of Sciences and Director of the Center of Economic and Social Research on China, but it was not easy to implement that decision. Now, however, during the global economic crisis China has an opportunity to do so.
All China needs to do is to curtail its dependency on its exports to the U.S., since ChinaÂ’s economy is quite strong. According to the Chinese Academy of Social Sciences, ChinaÂ’s GDP will grow by 10.1 percent in 2008, whereas inflation will decrease from 6.5 percent in 2008 to 4.5 percent in 2009.
Andrei Ostrovskii is confident that China will achieve its goals easily, even at a time of the world economic crisis.
The percentage of foreign direct investment in China’s economy is not more than 10 percent; the share of the exports to the United States in China’s total external trade does not exceed 20 percent. It is very easy to halve that share – China simply needs to redirect a part of its exports from the United States to South-East Asian countries. Therefore, Andrei Ostvoskii sees no threat to the Chinese economy.
Unfortunately, China will have to accomplish all this without its almost two trillions of dollars.
When it started negotiations with Taiwan about an arms sale, the United States practically sent China a signal. As a result, China will hardly be able to withdraw its money from the U.S. government bonds. Yet Russia has a new opportunity for cooperation with China, as these two countries can work together to retrieve their money from the United States, the scientist says.
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