Editorial: US should treat Chinese concerns cautiously
- Source: Global Times
- [23:50 July 27 2009]
- Comments
Many topics are on the agenda at the ongoing first China-US Strategic and Economic Dialogue. But the one Chinese people are most concerned about is how the US will guarantee the safety of China’s US dollar-based assets.
According to information released on the US Department of Treasury’s official website recently, China’s US treasury bond holdings hit a record high of $801.5 billion at the end of May, constituting about 65 per cent of China’s total foreign exchange reserves. China added $38 billion to its US debt holdings in May.
From the very beginning of the global financial crisis, Chinese people have never stopped worrying about China’s huge US dollar-based assets, the results of their hard work. As the crisis deepens, so do these concerns.
Such anxiety is not groundless: it is based on an analysis of how the US has dealt with past economic crises and the overall gloomy state of US treasury bonds.
In the past decades, the US experienced a dozen economic crises. Every time, it was good at shifting the impact of the crisis abroad and even managed to emerge stronger afterward. In 1971, because of the excessive number of printed dollars and the serious US trade deficit, many foreign countries demanded to exchange gold for paper dollars.
Then-US President Richard Nixon unilaterally canceled the Bretton Woods system and ceased the direct convertibility of the US dollar to gold. This irresponsible action caused terrible financial stress in the world economy and created the unique situation in which the US dollar became the world’s main reserve currency.
In 1985, in order to reverse the US’ huge trade deficit with Japan, the Plaza Agreement was signed by the five governments of France, West Germany, Japan, the US and the United Kingdom, to depreciate the US dollar in relation to the Japanese yen. As a result, the US got through another serious recession and left Japan in a 10-year economic downturn.
Looking at the current situation of the US economy, Chinese people cannot be optimistic. It is very obvious that the US needs to sell much more debt to conduct further economic stimulus. Many economists and experts both in China and the US fear a potential crisis with US treasury bonds, and suspect the crisis in the banking system is not over.
The US must understand Chinese people’s concerns are reasonable and deserve cautious treatment. Detailed plans should be made public to reassure Chinese. If the US shifts the burden of the crisis abroad at the cost of China’s interests, as it did decades ago to Europe and Japan, the strategic and economic dialogue between China and the US will be meaningless.
Above all, China is not Japan of the mid-1980s. If the US insists on shifting the impact of the crisis to China, nobody will be the winner.
