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How China deploys its reserves remains a matter of great concern, especially to the United States, since most are invested in US dollar-denominated debt. If China transferred significant amounts into other currencies — it is believed that it holds rather more than 60 per cent of its reserves in dollars (with less than 30 per cent in euros), though this is a tightly guarded secret [569] — it would have the immediate effect of depressing the value of the dollar and forcing US interest rates to rise: the larger the sum transferred, the bigger the fall in the dollar and the larger the rise in interest rates. But the government is also faced with something of a dilemma. It would certainly make good economic sense for China to transfer a large slice of its reserves out of US Treasury bonds: the dollar’s value fell steadily in 2006- 8, then recovered somewhat, but there remains the strong possibility that its price might fall even further, perhaps precipitously so. China ’s vast dollar investments in US Treasury bonds furthermore earn miserable rates of return, which makes precious little sense for what is still a poor country. [570] However, if it tries to transfer significant sums of its reserves into other currencies, thereby provoking a further fall in the value of the dollar, then the value of its own dollar reserves will also decline. China is in a catch-22 situation. The two great, but utterly unlike, economic powers of our time find themselves — at least for the time being — in a position of bizarre mutual dependence. [571] This was graphically illustrated in the darkest days of the financial meltdown in September 2008, when it is believed that the Chinese were pressing the US government to rescue Fa
Before these tumultuous events, China had already been exploring other ways of using its vast reserves. In early 2007 the government a
The relationship between the United States and China needs to be set in a broader global and historical context. The belated acceptance of China as a member of the WTO in 2001 marked the biggest extension of the world trading system since the begi
China’s impact on the global trading system is so huge, and also in the longer term so uncertain, that this is a difficult question to answer. There are already tensions over China’s relationship with the WTO: on the one hand, there are accusations from the developed countries that China is failing to implement WTO rules as it ought to, while on the other hand, both the US and the European Union are using anti-dumping clauses (designed to prevent countries selling at unfair prices) as a pretext for deploying protectionist measures against Chinese goods. [581] There has been constant controversy around Chinese exports to the US. During 2007 these were concentrated on the safety of Chinese products, notably food and toys, as well as China’s failure to observe intellectual property rights. [582] So far these skirmishes have been at the relative margins of their trading relationships but they could be a harbinger of growing tensions in the future. Although the present era of globalization was designed by and is the creature of the West, above all the United States, the greatest beneficiary has been East Asia, especially China. [583] If the West should decide at some point that China has been the chief beneficiary — and to the West’s growing detriment — then the latter is likely to become increasingly protectionist and the present global system will be undermined. The process of globalization has already ground to a halt with the failure of the latest World Trade Organization Doha Round and is extremely unlikely to be revived. [584] But it remains to be seen whether this will be the prelude to a wider breakdown.
Hitherto, the main losers in the Western world have been those unskilled and semi-skilled workers who have been displaced by Chinese competition. But their grievances have been dwarfed by the wi
[569] Andrew Batson, ‘ China May Get More Daring With Its $1.07 Trillion Stash’, Wall Street Journal, 15 February 2007.
[570] ‘ China Money Trouble: Where to Park It All’, International Herald Tribune, 6 March 2007.
[571] ‘China Voices Alarm at Dollar Weakness’, Financial Times, 19 November 2007; Keith Bradsher, ‘Rising Cost of Buying US Debt Puts Strain on China’s Economy’, International Herald Tribune, 4 September 2008.
[572] Also, Lex, ‘ China and Fa
[573] ‘ China Acts to Become Huge Global Investor’, International Herald Tribune, 10–11 March 2007.
[574] ‘ Beijing to Take $3bn Gamble on Blackstone’, Financial Times, 18 May 2007.
[575] ‘ China ’s Two Trillion Dollar Question’, editorial, Financial Times, 11 September 2008.
[576] For a broader view of the rise of such funds, see Martin Wolf, ‘The Brave New World of State Capitalism’, Financial Times, 16 October 2007.
[577] ‘China Aids Barclays on ABN Amro’, Financial Times, 23 July 2007; ‘The Chinese Bank Plan is One to Watch’, Financial Times, 23 July 2007.
[578] ‘Bear Stearns in Landmark China Deal’, Financial Times, 22 October 2007.
[579] ‘Chinese Banks Seek Stake in StanChart’, Financial Times, 18 November 2007. Earlier in 2007, the Bank of China was reported as being interested in acquiring a US bank; ‘Bank of China Seeking US Acquisition Targets’, South China Morning Post, 22 January 2007.
[580] Wang Zhengyi, ‘Conceptualising Economic Security and Governance’, p. 541.
[581] Elizabeth Economy, ‘China, the United States and the World Trade Organization’, Council on Foreign Relations, Washington, DC, 3 July 2002, pp. 1–4; Shen Boming, ‘The Challenges Ahead: China’s Membership in WTO’, 2002, available to download from www.cap.lmu.de/transatlantic/download/Shen_Boming.doc, p. 7; Shenkar, The Chinese Century, pp. 167-8; Yu Yong Ding, ‘The Interactions between China and the World Economy’, pp. 4–5.
[582] ‘China Tackles Tainted Food Crisis’, ‘Scandal-hit China Food Firms Shut’, ‘Chinese-made Toys Recalled in US’ and ‘Bush Tackles Scares over Imports’, all posted at www.bbc.co.uk/news; ‘US Trade Body Sets Stage for Action on Beijing “Sub- sidies”’, South China Morning Post, 18 December 2006: ‘Mattel Apologises to “the Chinese People”’, Financial Times, 21 September 2007; ‘Beijing Overhauling Food Safety Controls’, International Herald Tribune, 7 June 2007.
[583] Wang Zhengyi, ‘Conceptualising Economic Security and Governance’, p. 541.
[584] AsiaInt.com, Economist Intelligence Review, October/November 2006, pp. 1–5; and Martin Jacques, ‘The Death of Doha ’, Guardian, 13 July 2006.
[585] Kynge, China Shakes the World, pp. 72, 78–82.