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Nov

2009

A special report on China and America: : Round and round it goes | The Economist

China and the US have a complicated relationship when it comes to trade. It may be changing in the future due to the recession in America, but for some that change can't come fast enough!

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economics current account capital account protectionism exchange rates managed exchange rate China

China, a developing country, lent vast amounts of money to wealthy America to feed its spending habit. Americans spent the money on Chinese-made goods, sending the dollars back to China, which lent them to America again.
for its growth, and on America in particular. By 2007 the value of China’s exports amounted to about 36% of its GDP, up from just over 20% in 2001.
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- American market, overtaking Canada. And by September 2008 China had surpassed Japan as the largest holder of US Treasuries
- China certainly helped its exporters by keeping the value of its currency low, buying dollars that were used to buy US Treasuries.
- e much of the value of Chinese goods consumed in America was created elsewhere. The biggest driver of growth in China was investment, and that has become all the more true as China tries to pump up its economy with nearly $600 billion in stimulus spending.
  - Jason Welker on 2009-11-06
    America might not be as crucial for Chinese growth as previously thought! Domestic investment is biggest factor now!
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- trading system, but it has no desire to pull the rug from under America’s economy. A run on the dollar would be a blow to China itself, slashing the value of its stash of over $800 billion in US Treasuries. Chinese officials also worry openly about a possible resurgence of inflation in America, which would also drive down the value of the dollar.
  - Jason Welker on 2009-11-06
    China is worried about the dollar's value, but is not likely to sell its dollar assets, since this would surely devalue the dollar and harm China too.
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- A recent study by the Peterson Institute says that the yuan remains “significantly undervalued”, by 15-25% against a weighted average of the currencies used by China’s trading partners
- As Americans save more and buy less from China, America’s trade deficit with China—which has been its biggest with any country since 2000—will shrink anyway. But protectionist sentiment in both countries will remain strong.
- Americ
- reject a takeover bid by Coca-Cola for a Chinese juice company as a bad omen. As Chinese businesses look around America for bargains, they will get a mixed reception: sellers are eager for China’s cash, but worried about the survival and security of Brand America
  - Jason Welker on 2009-11-06
    Chinese continue to demand US assets in the capital account, but American businesses are reluctant to sell to Chinese investors...
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