China, America's Unpredictable Banker
"The biggest help China can give the world is to maintain its own economy" - was the refusal some Chinese officials gave to a couple of Europeans who thought it was their right to ask China for money to help the world economy (especially because the foreign currency reserve China has is due to its huge commercial trading with the West).
For now, China is silent. The only important decision was to decrease its banks' interest and to pump almost 600 billion euros in its own economy, which was also hit by the crisis. This is a sign in itself - China is turning its face towards its own consumers, as its exports decrease. It's all done in perfect "discipline" - the banks are owned by the state, the state tells the Chinese when to borrow and when not to, those who got rich either honestly or dishonestly pay with their freedom or even with their lives. And when there arent any commands, companies are ordered not to fire, but to shrink everyone's salary.
Still, China is under enormous external pressure, and its economic decisions during the crisis could change the face of the world. It is currently the only huge economy that holds massive liquidity (trillions of dollars' worth) and that will have a higher economic growth (7.5 percent in 2009). And in the long run, China can only win. The cheap products it exports will be more and more wanted during the crisis. The fact that it's the state which imports the most recyclable products helps too, as they are a cheap product to work with.
The US are, however, depending directly on the well being and economic behavior of China. Out of all the world's states it owes, America owes China the most (approximately 10 percent of its $10 trillion debt) . It is also true that in the U.S. there almost aren't any stores in which half of the products aren't "made in China" - from birthday cards to high tech products and children's toys. China agreed to buy state owned titles, in the process giving America some of these liquidities in exchange for the opening up of the American market. For this reason, America didn't react when the lives of Americans were threatened by Chinese products ranging from children's toys to toxic toothpaste and even melamine milk.
China will, by 2025, become one of the world's greatest powers, or so the American secret service foretells. And it is a ruling America is silently agreeing to, because so far China has financed the American consumer himself. It is not known, however, what the states will have to offer anymore, when it won't be able to buy Chinese products (imports are already down 5 percent because of the recession). Or if the Asian giant will decide one day that it wants its commercial trade to be done in a different currency, other than the dollar (Russia is already adding pressure on the matter). This kind of decision would weaken the American currency.
The new U.S. administration looks pretty split up on this problem. If Hillary Clinton, the future Secretary of State, made sure to pay its dues to China, explaining that the relationship between the two powers will be "this century's most important bilateral relationship," the positions taken by President-elect Obama don't look so peaceful. Chinese products could be thought of as partly responsible for the array of jobs lost in the U.S. Also, companies who decided to move to China for the sake of a cheaper labor force will suffer consequences in the form of extra taxes. It remains to be seen whether the chosen leader will be able to find a compromise in an equation with so many variables.
For now, China is silent. The only important decision was to decrease its banks' interest and to pump almost 600 billion euros in its own economy, which was also hit by the crisis. This is a sign in itself - China is turning its face towards its own consumers, as its exports decrease. It's all done in perfect "discipline" - the banks are owned by the state, the state tells the Chinese when to borrow and when not to, those who got rich either honestly or dishonestly pay with their freedom or even with their lives. And when there arent any commands, companies are ordered not to fire, but to shrink everyone's salary.
Still, China is under enormous external pressure, and its economic decisions during the crisis could change the face of the world. It is currently the only huge economy that holds massive liquidity (trillions of dollars' worth) and that will have a higher economic growth (7.5 percent in 2009). And in the long run, China can only win. The cheap products it exports will be more and more wanted during the crisis. The fact that it's the state which imports the most recyclable products helps too, as they are a cheap product to work with.
The US are, however, depending directly on the well being and economic behavior of China. Out of all the world's states it owes, America owes China the most (approximately 10 percent of its $10 trillion debt) . It is also true that in the U.S. there almost aren't any stores in which half of the products aren't "made in China" - from birthday cards to high tech products and children's toys. China agreed to buy state owned titles, in the process giving America some of these liquidities in exchange for the opening up of the American market. For this reason, America didn't react when the lives of Americans were threatened by Chinese products ranging from children's toys to toxic toothpaste and even melamine milk.
China will, by 2025, become one of the world's greatest powers, or so the American secret service foretells. And it is a ruling America is silently agreeing to, because so far China has financed the American consumer himself. It is not known, however, what the states will have to offer anymore, when it won't be able to buy Chinese products (imports are already down 5 percent because of the recession). Or if the Asian giant will decide one day that it wants its commercial trade to be done in a different currency, other than the dollar (Russia is already adding pressure on the matter). This kind of decision would weaken the American currency.
The new U.S. administration looks pretty split up on this problem. If Hillary Clinton, the future Secretary of State, made sure to pay its dues to China, explaining that the relationship between the two powers will be "this century's most important bilateral relationship," the positions taken by President-elect Obama don't look so peaceful. Chinese products could be thought of as partly responsible for the array of jobs lost in the U.S. Also, companies who decided to move to China for the sake of a cheaper labor force will suffer consequences in the form of extra taxes. It remains to be seen whether the chosen leader will be able to find a compromise in an equation with so many variables.
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