political science job rumors » Topic: Explain to me China's Economic Power vis-a-vis America

Wang Fei Hung on "Explain to me China's Economic Power vis-a-vis America"

Wang Fei Hung — Mon, 30 Nov 2009 17:34:07 +0000

There is no policy change. China's policy has always been one of peaceful coexistence and economic relations that benefit both sides. China does not interfere with other countries but offers them opportunities.

SLACprof on "Explain to me China's Economic Power vis-a-vis America"

SLACprof — Mon, 30 Nov 2009 15:55:57 +0000

"Is that basket considered a significant change in policy?"

mmm. It would be more accurate to say that it is a symptom of a policy change. China has been pursuing a broad diversification strategy for several years now as it moves into other markets both as a target for goods and as a source of cheaper components or raw materials. This diversification is both an end and a means to the end of improving its world standing. As a result, they are developing larger and larger trade surpluses with other countries, which in turn results in more diverse holdings.

Anonymous on "Explain to me China's Economic Power vis-a-vis America"

Anonymous — Mon, 30 Nov 2009 15:48:24 +0000

There are many reasons why many "ordinary" people throughout the world wish to invest in US government debt. If China fully relaxed currency controls, my guess is there would be a flood of yuan into dollars by "ordinary Chinese".

The_Dude on "Explain to me China's Economic Power vis-a-vis America"

The_Dude — Mon, 30 Nov 2009 08:29:08 +0000

When the ordinary Chinese people realize that their government invested in the currency of a now (almost) defunct superpower, well, that will be the day my friends.

Yentl on "Explain to me China's Economic Power vis-a-vis America"

Yentl — Mon, 30 Nov 2009 04:56:10 +0000

Is that basket considered a significant change in policy? If so, does it signal to investors/traders that China's confidence is waning in the dollar? Is it a latter-day sign of the Apocalypse?

Eight Ball on "Explain to me China's Economic Power vis-a-vis America"

Eight Ball — Mon, 30 Nov 2009 04:53:12 +0000

China was really worried about the value of the dollar declining in the long term, they'd start diversifying their foreign holdings

They are worried about the value of the dollar. Clinton's and Obama's trips to China were in large part reassuring the Chinese that the U.S. government is committed to holding up the value of the dollar. Health care reform in large part is about trying to bring the U.S. economy back into balance and signaling to investors (including the Chinese) that the U.S. is taking definite steps to protect the dollar.

Anonymous on "Explain to me China's Economic Power vis-a-vis America"

Anonymous — Mon, 30 Nov 2009 04:51:07 +0000

Yes, you are right. Holding T-bills is like holding dollars. The key difference is that T-bills earn interest; that's the main reason the Chinese convert them from dollars to T-bills.

China *is* diversifying its holdings. They're now holding a "basket" of currencies as well as using their sovereign wealth funds to buy businesses.

Eight Ball on "Explain to me China's Economic Power vis-a-vis America"

Eight Ball — Mon, 30 Nov 2009 04:50:26 +0000

am I to understand that T-Bonds are basically equivalent to buying dollars?

No! The Chinese gain dollars through their trade surplus. One thing they do with these dollars is buy U.S. bonds.

Eight Ball on "Explain to me China's Economic Power vis-a-vis America"

Eight Ball — Mon, 30 Nov 2009 04:48:34 +0000

it is mutual interdependence

It still represents an unsustainable situation, and U.S. economic/political decline.

Yentl on "Explain to me China's Economic Power vis-a-vis America"

Yentl — Mon, 30 Nov 2009 04:47:33 +0000

Thanks for all the info kids, my intro Poli Sci students will be very much enriched!

But to be clear, am I to understand that T-Bonds are basically equivalent to buying dollars? Because it's the buying of these bonds that keep the dollar up, or at least allow the US government to print more money without massive devaluation.

If China was really worried about the value of the dollar declining in the long term, they'd start diversifying their foreign holdings, right? This might be risky because traders might see it as decrease in the confidence of the dollar and the bottom might fall out. China doesn't want this, not only because they own so many dollars, but because they sell so much of its products to the US. What happens when external factors lead to the drying up of American consumption power? e.g., the imminent credit-card crisis ...

Can anyone comment on any of these contingencies? What's China's plan? or did they overplay their hand in the bond market?

Eight Ball on "Explain to me China's Economic Power vis-a-vis America"

Eight Ball — Mon, 30 Nov 2009 04:46:58 +0000

It is not solely that the Chinese buy U.S. bonds and finance the government's deficit/debt. The Chinese simply sit on many of U.S. dollars that they through their trade surplus, and thus supporting the value of the dollar. If they dumped their dollars, the value of the dollar would collapse.

Wang Fei Hung on "Explain to me China's Economic Power vis-a-vis America"

Wang Fei Hung — Mon, 30 Nov 2009 04:42:44 +0000

Do not bother trying to understand. You are not supposed to.
"Let your plans be dark and as impenetratable as night, and when you move, fall like a thunderbolt.”

ChinaScholar on "Explain to me China's Economic Power vis-a-vis America"

ChinaScholar — Mon, 30 Nov 2009 04:37:53 +0000

I think China now is in an unenviable position of being wrong no matter what it does.

Eight Ball on "Explain to me China's Economic Power vis-a-vis America"

Eight Ball — Mon, 30 Nov 2009 04:32:43 +0000

It is not solely that the Chinese buy U.S. bonds and finance the government's deficit/debt. The Chinese simply sit on many of U.S. dollars that they gain through their trade surplus, and thus supporting the value of the dollar. If they dumped their dollars, the value of the dollar would collapse.

Anonymous on "Explain to me China's Economic Power vis-a-vis America"

Anonymous — Mon, 30 Nov 2009 04:31:58 +0000

BTW, I would add that it's not so much Chinese economic power over the US, as it is mutual interdependence. For example, if China were to start dumping their dollar holdings, the value of the dollar would collapse (or at least fall dramatically), meaning the value of the dollars China was still holding would plummet, so it's hardly in their self-interest. Nor is in their self-interest to stop financing our imports of their products.

Anonymous on "Explain to me China's Economic Power vis-a-vis America"

Anonymous — Mon, 30 Nov 2009 04:28:45 +0000

At the risk of gross oversimplification, here are the basics:
We buy Chinese exports. They don't buy nearly as many (technically "as much" since it's dollars not numbers we're concerned with) of ours. That gives them a lot of our cash (dollars). They use those dollars to buy treasury bills (among other things). Those are pieces of paper that say "The US government owes you -insert amount here- dollars (including interest) at some point in the future."
That gives us the dollars back (temporarily), which we then use to import more Chinese goods.

ChinaScholar on "Explain to me China's Economic Power vis-a-vis America"

ChinaScholar — Mon, 30 Nov 2009 02:42:18 +0000

^this one looks far more thoughtful by virtue of its length. thanks for sharing the link. will take a look for tomorrow's lecture.

BMandeville on "Explain to me China's Economic Power vis-a-vis America"

BMandeville — Mon, 30 Nov 2009 02:36:26 +0000

Here's another good one

http://www.theatlantic.com/doc/200801/fallows-chinese-dollars

LostinMichigan on "Explain to me China's Economic Power vis-a-vis America"

LostinMichigan — Mon, 30 Nov 2009 02:31:59 +0000

Try this article for a jumping off point...

http://www.thenation.com/doc/20091207/hayes

Yentl on "Explain to me China's Economic Power vis-a-vis America"

Yentl — Mon, 30 Nov 2009 02:29:14 +0000

I often make reference to China owning America's debt, and that this give it great power in the world. It occurred to me that I don't really understand the processes at work here ... nay, at all. How is that China came to own American debt? Is this related to investment in T-bonds? Do central banks simply lend to other central banks? I'd love some clarification on this.

yours truly,

Clearly not an IPE Scholar