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For the same reason, the Chinese cannot dump our debt, as a Chinese general suggested in February as a means of punishing us for arms sales to Taiwan. In any event, the tactic, which the Chinese call the â??nuclear option,â? will not work.
If the Chinese sell our debt, they will still get back dollars. If they are doing this to hurt us, they will exchange their dollars for other currencies. As a practical matter, they will be converting their dollars into euros, pounds, and yen.
Those purchases will send the value of those currencies soaring, which means Brussels, London, and Tokyo will go out into the market to rebalance their currencies, and the only way they can do that is to buy... dollars. The result? Our debt will be held by our friends instead of a potential adversary. If debt is a weapon, then dumping it is unilateral disarmament.
So the Chinese government has bought and will continue to buy our debt. There were reports that Beijing sold $34.2 billion of U.S. Treasury securities in December from publicly tracked accounts, undoubtedly sending us a warning. But at about the same time, the Chinese were buying Treasuries through foreign nomineesâ??that is, secretly. We should of course be concerned about the estimated $1.7 trillion of our governmentâ??s debt that China owns, but this holding is not a sword over our heads.
The Chinese, struggling to keep their economy moving forward, are more dependent on us than we are on them. And that means what everyone knows about Chinaâ??that Beijing holds all the cardsâ??is just a myth. Thatâ??s why Hu Jintao is in Washington at this moment.
Gordon G. Chang is a Forbes.com columnist and the author of The Coming Collapse of China.
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This is a terrible writer.Just because china's presiden't is smart enough to be friendly, social, and be part of the world.Does not end anything. Yes it is a 2 way street. We owe, them, we can sleep because we can say, we will not pay you back. But do not be fooled at the growth of china, its monstrous ,mamoth power,they want us to continue borrowing and paying. But we are not growing we are sinking.The time can come when they will not want to lend anymore, and not need us either.For now, everyone keeps their enemies close, and acts like best friends.China, Pres. Obama, is a fabulous, human being, No one likes to be left out of the party. But china, at the end will do what is convenient for china,so will iran,so will russia, and others.For now all okay.
I disagree, the writer is telling the story of China's ficticious stranglehold on America through it's debt ownership. Just because they didn't also write a story about the ficticious Great Downfall of America doens't mean the article isn't useful as an enlightening and educational tool regarding a very small slice of the Chinese situation. It also provides an opinion on why Hu reversed himself at the last minute in a couple of current events. As a bit of light reading I'm happy to applaud the writer for some entertainment and elucidation.
To the writer, have you vever been to china??Go see how small, and old, and worn out NY, looks, nothing anyone can imagine, is imaginable of this sleeping dragon.
You're apparently unfamiliar with Gordon's work. You may disagree with his conclusions but you should not be so dismissive of someone who is somewhat of an expert in the field in which he speaks. Most China followers have read his work.
Interesting to read a view that shows the other side of the China-US trade relationship. I just returned from a trip to China and in my conversation with many Chinese, the currency rate issue always come up. The way the ordinary folks (well, these are not really ordinary folks, they are highly educated government officials, though not expert on international finance) read it is that this is another blatant example of how US is bullying China. The nationalist sentiment is easily aroused in Chinese people, the the sense of victimhood quickly set in. Unfortunately, I am afraid that Chinese government does not educate their people well, and in fact sometime purposefully fanning this type of nationalist sentiment, particular the editorials in the newspaper.
fk4711,what you are saying is true. the govt. do not educate, their country mainstream. If we look at the millions and millions we have given to all countries, iraq, pakistan, Afghan, Somalia, Latin America, on and on.Who keeps the money. The govt. Who educates, train and pass on the hatred to their people. by opressing them, and making us the villains.Arafat's fortune is unimaginable.But he built terrorist camps, and brutal hatred. Instead of passing the money on,educatig, teaching ,offering businesses. Ofcourse this is different than the Chinese. I can tell you what was recently told to us.."Make friends, while you are here. Make good allies, and friendships, because they will rule the world.""They do not make a misjudged movement.Maybe all people, all over the world, would get along without govts.
Another meaningless and misleading headline slapped onto an extremely complicated and fluid topic. "China's Reign Ends Tomorrow". What a laugh. It hasn't even started, except as a regional bully lording it over its weak neighbors, while keeping a wary eye on India and Russia. As for being a superpower, China might well be on its way to being one very soon, but it's not quite there yet, unless India and Russia are to be counted as superpowers as well. Once there, China will discover the limitations of being a superpower, just like the Russians have in their ongoing inability to overcome the freedom fighters\terrorists of the North Caucasus, or the Indians chronic inability to overcome the Naxalite-Maoist freedom fighters\terrorists that infest eastern India, or our own chronic inability to find and kill Osama bin Laden and his cohorts, or better yet, our chronic inability to come up with a balanced national budget so we don't have to borrow our spending money from the Chi-Coms.
Right now, the world system is in a fluid situation becuase America has been in decline for decades but no new hegemonic power has emerged yet. We are now in a multipolar world, although the center of world capitalism is now moving away from the US to Asia. The American model of free market capitalist development is also totally discredited, along with its militaristic attempts at reviving its hegemony under Bush Junior. So the U.S. has entered an era of political, economic and cultural senility, and China is the most obvious replacement, although this multipolar situation will continue for a few decades.
it is this kind of talk or writing that might make chinese people angry if they read it. I agree that China owes US a lot because whatever it has accumulated was mostly from the US decision to go over there and hire chinese workers......to produce and make them richer....etc BUT you are showing arrogance and that may irritate the chinese..............PRUDENCE is a good attribute that Americans pundits lack.
Actually, now that Google is out of there, it's unlikely that the Chinese in China will get to read this, and the Chinese that are over here most likely are of the same opinion. For myself, I appreciate the enlightenment and PRUDENCE is actually just fear and paranoia in the face of uncertainty and ignorance in this case. Actually it would be good for the Chinese to hear a little truth every once in a while too.
ARE you of chinese descent ?? and now an american citizen. well you are trying to do US a favor that might backfire. so please do not cause any problems by your zeal.
Gordon G. Chang is the one who in 2001 wrote a book titled, "The Coming Collapse of China." Nine years later, I think it's safe to assume that his supposed knowledge and expertise are based on either ignorance or hatred of his own ancestry. I'm not sure which is worse, but I AM sure that his credibility is nil. Why did the Daily Beast bother asking for this clown's opinion?
Silly perspective. China has major structural problems, many which have been papered over. Gordon has written extensively re: the NPL problem (non performing loan)...this is a HUGE problem which has been largely obscured with the use of equity swaps, AMCs and a constant infusion of capital from the policy banks (SOCBs). You might wonder why an economy that is said to be steaming along through troubled waters needs to infuse stimulus equivalent to 1/3 of its GDP in 2009 and in the first month of 2010 injected another massive bolus of stimulus, equivalent to the last 3 months of 2009. Suggestions that the Chinese economy has transitioned into a domestic consumption driven economy are simply wrong. The Harvard study that some refer has problems. China is export driven, period. Around 20% of aggregate GDP comes from the US and 22% from Europe with Asia also composing a large percentage. Domestic GDP as a percentage of aggregate GDP is somewhere between 30-40% which is about the opposite relative to the US. What is important to note that if the US and European countries still have relatively laggard economies and consumers continue to deleverage and maintain relatively high levels of unemployment (likely) then this is a significant problem for China. In addition, the risk trade is a big problem for China-related investments if we see a blow up in one of the PIIGS or elsewhere as hot money will probably seek safety, China has a major real estate bubble which has been inflated in large part with the assistance of local government which benefit directly. The equities market is a bit of a sham when one researches the role of SOCBs and AMCs to strip SOEs of their bad debt and clean up the balance sheet prior to an IPO. Moreover, the govt maintains large equity stakes and actively participates in the market. There is a huge amount of corruption in the Chinese economy as witnessed by last years big announced bust of party types. Jim Chanos is somewhat late to the party. Gordan wrote about many of these underlying issues some time ago. Predicting the timing of a crisis is very difficult, this is compounded when the market happens to be in an authoritarian country with significant economic controls. China has made significant efforts to reform since Gordon wrote his book, but the underlying system is still problematic at best and unsustainable at worst. If you want to learn, read Pivot Capital's report that came out last fall. This was the report that Melissa Lee makes an oblique reference in her CNBC interview with Chanos. By now the Pivot Capital report is readily available on sites like scribed. It is curious to see so many people weigh in on a complex subject who apparently have no basic understanding of the underlying argument that Gordan makes or even a basic appreciation of the subject. I would direct your attention to SoGen's Albert Edwards as well as Andy Xie, Patrick Chovanec, and Edward Chancellor. This is esteemed group who are experts in their specific fields and have had a number of things to say about China and their views are readily available. A clear sign of a bubble is when we see passionate convictions from people stating a heart-felt opinion on something and believe that things are somehow different. The old Kennedy quip about getting investment advice from the shoe shine boy on the eve of the great depression comes to mind. That is not to say I am overly confident about the US economy and I fully recognize the absolutely massive wall of crushing debt and taxes that will come crashing upon the US and reverberate throughout the global economy. Nor do I have a natural bias against Asia. I do not and actually have quite a demonstrable fondness for Asia, including China. Gordon is but one voice among many, who have published extensively on this topic. Don't shoot the messenger.
Nobody denies that China faces a number of economic, infrastructural, governance and political challenges. And most, including me, will readily agree that a bubble, mismanagement, and corruption are all problems that China has yet to confront and acknowledge -- at least, not publicly. And most, including me, agree that these problems MUST be solved or else catastrophe will result. Chang's analysis (and yours, I presume) are flawed in two fundamental ways. Firstly, an anti-Chinese bias that are as troubling and puzzling as they are offense and contemptible. Secondly, Chang compares China's to those of developed/industrialized societies such as the U.S. and Western Europe. Simply put, because of its relatively primitive state of industrialization and development, China is better able to withstand the consequences of its problems, just as the U.S. and Europe did post WW II, just as the U.S. and Europe did post Industrial Revolution. I might also add that China's economic reliance on the U.S. and European market is lessening year by year, as it focuses on developing its own internal consumer market and trade within Asia. In this, China capitalizes on a fundamental and common East Asian viewpoint, best summarized as, "We think China is a nation of jerks, but at least they're not as bad as the Westerners." Gordon G. Chang is a writer who consistently makes sweeping pronouncements that show massive bias and little intellectual rigor. You note that it is difficult to predict when a crisis will occur. Well, I don't think being correct within a five-year window is too much to ask -- any more and it's not a prediction or a forecast -- it's sophistry. Chang's predictions are, in essence, bloviating blanket statements that are bound to come true someday. EVERY country will suffer a financial crisis -- someday. The Chicago Cubs will win the World Series again -- someday. But when the Cubs win, when China faces a crisis, if it's more than five years after his prediction, he hardly deserves credit for having added anything of value to the conversation.
The US is having these problems with China, because the USA is a plutocratic republic ( a 100% chicken shit capitalistic republic). About China; if they manage to be self sufficient,and their leaders do not become corrupted,overpaid crooks like the USA leaders,China will rule the world. We need to learn from the chinese ;chinese leaders usually execute any government official that has become corrupt --- in the USA we reward them --- Here in the USA we need to reform all our corrupted institutions especially the US senate,the crooked health care industry,we do not need insurance companies( it is a con game) we need to reform the justice system,tax system, immigration system,banking et cetera.We need to reform the political contributions,we need to come up with a better USA supreme court --- the one we have now is not working --- We need to stop being a capitalist/plutocratic republic,et cetera. About our debt to China;Put 91% Tax on the filthy rich,Tax heavily the large corporations profits.Tax all churches very heavily,Put a 27% tax on the rest of the population;we can not tax the poor --- they do not have the money --- Change the tax system as soon as possible it has become an ugly industry where the scumbag tax lawyers are having a field day finding loop holes for the very rich et cetera. Use that tax money and pay China.If nothing works,since the USA reputation is very low, because nobody likes debtor,chicken shit nations: (1) confiscate most of the wealth from the filthy rich plutocrats. that money was stolen from the USA tax payers anyway. (2) Also,use Iraq's oil to pay China.Since the money to torture and kill a million and a half iraqis came from China. (3) If we still owe the chinese money.Print plenty of USA dollars and give it to the chinese.( we are a bankrupted republic anyway ) (4) If we are still having problems;round up all US senators,put them in an airplane,land them in Beijin.After we are sure that all the crooked USA senators are in Beijin,drop a few nuclear bombs all over China, et cetera. (5) whatever we do; has to be performed quick,before the chinese become more powerful;remember they are just beginning to wake up.We better catch them while they are still sleeping!
China's reign as a superpower has not even begun yet. Give it fifty years and you'll see, even though I'll be six feet under by that time. America has been in decline since the 1970s and that is now terminal. The present collapse of American-style capitalism and the failed effort at nation-building in Iraq and hegemony in the Middle East are just more indications of that decline.
China will not survive in its current form for 50 years. The demographic time bomb begins to explode in 15 years. The one child policy has created a number of unintended consequences, including a significantly increase in the median age of Chinese as there are a much smaller number of young relative to old. In addition, we see a significant skew in favor of boys relative to girls as girls tend to be aborted at a much higher rate. The result is an extra 20 million men relative to women. Not good for a society that seeks equilibrium. In addition, income distribution is very skewed with significant portions of the populous. I would lastly make a structural argument, that is to say, authoritarian regimes simply don't have the mechanisms and tool sets available to provide a flexible framework for large social and economic change. The modern Chinese economic experiment has been underway for a relatively short period of time. It is still not clear that an authoritarian system of governance is compatible with a robust economic environment. My own understanding of China and of markets would suggest that the internal conflicts at some point become intractable and the system will break as it by the nature of the system it lacks flexibility.
China doesn't need nukes, they can crash our economy anytime they like.
Not really unless you consider a suicide pact a real option.
Super Power.. yeah . What`?.. China, over populated. . dirty, millions with little or no education - worker exploitation, and i mean 10 year olds..not even a pass at faux western style democracy. apart from chinese food.. what do most people know about China and Chinese people- here is why... culturally illterate - closed, un imaginative, sheep, insecure about their own skin color - and eyes - wanna be white. penis envy, vehmently racist and nationalistic - Other than the food which Chinese traditions or modern cultrual trends have been adopted enmasse the rest of the world .- i admit there are h alot, alot of people.. and they love money.. and not the environment - will kill and eat most anything that did not get away - including rover - and kitty - if this makes china a super, dont mind to extinct a species in the pursuit of fake medicine .. OK ... then i agree.. sorry i was wrong . on the trendy cultrual front we have the aging albeit broken Jackie Chan, a perpetually under dressed Bai LIng ( can anyone understand her?) and Michelle Yeo - Wow!... Can you name 5 Chines movies you have seen this year? me either... not that hollyweird is a gem but hey you cannot beat a good Tom Cruise flick or scientology joke . and their is Glorious Nicole to fantasize about... One would think after 5000 years and being the inventors of Spaghetti, Gun Powder and Fire crackers - that they would have been the only Super Power then and now . but they been getting there butts kicked for a long time - by some tiny countries too . Super Power - Im game - fill my ignorant ass in .
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