原文标题：SPECIAL: Why China is at America's mercy
"So how was the movie?" my roommate asked, after I had just finished watching the all-time classic Gone with the Wind."
"It was nice. And I loved the last line," was my reply.
"Last line?" she asked.
"Yeah, in which Rhett Butler, the hero of the film, tells the heroine, Scarlett O'Hara, 'Frankly, my dear, I don't give a damn'."
"Oh, my. That's some line."
"Yeah, it is. And it's so true even about the world that we live in."
"There you go again, talking in that roundabout manner of yours. Please explain."
"So let me start at the very beginning."
"Oh. But doesn't everything start at the very beginning?" she interrupted.
"Yes, it does. Can I continue?"
"Yes, of course," she said.
"So somewhere over the last 20 years, China became the factory and the outsourcing capital of the world. Everything from Nike shoes to Dell PCs were made in China. A lot of this stuff made in China was exported to other parts of the world."
“电影怎么样？”在我观看完永恒的经典电影《乱世佳人》（Gone with the Wind）后，室友问我。
“耶，电影男主角白瑞德(Rhett Butler)告诉女主角郝思嘉（Scarlett O'Hara），‘坦白说，亲爱的，我一点也不在乎’。”
"Yeah, I know. Like my laptop is 'Made in China'," she said.
"Hmm. But a major part of the Chinese exports was to the United States. For these exports the Chinese exporters earned US dollars. When these dollars came back to China, the People's Bank of China, the Chinese Central Bank, bought these dollars and gave the Chinese currency renminbi to the exporters."
I went on: "This helped in maintaining a peg between the Chinese renminbi (also known as the Yuan) and the US dollar."
"Peg? What has a 'peg' got to do with currencies?" my roommate interrupted again.
"That wasn't funny at all. The Chinese government ensured that the US dollar could be converted into the renminbi at a fixed rate. One dollar was worth 8.27 renminbi between1997 to 2005. Now how did this work?"
"Yeah. How did it work? I haven't understood this at all!"
"See, if a normal currency market functions, things would work like this. The Chinese exporter exports goods to the United States. He earns dollars in the process. But his expenses are in China. He has to pay taxes in China. And so he needs the renminbi."
"So," I said, "when he gets his money back to China he converts those dollars into renminbi. Now with exports growing big time in China, every time dollars are converted into renminbi, the demand for renminbi goes up. With the demand for renminbi going up, the renminbi gains in value against the US dollar and this would have hurt the exporters."
"I still don't understand," she replied.
"Okay, let me give you an example. Let's say an exporter exports goods worth a million dollars to the US in the year 2004. When he gets the money back into China he gets 8.27 million renminbi (1million x 8.27). Now for the sake assumption, let us assume that the demand for the renminbi has gone up and one dollar is now worth only eight renminbi now. In this case the exporter earns only 8 million renminbi instead of the 8.27 million he earned earlier. So if the domestic currency appreciates the exporters tend to lose."
"Now I get it," she replied with an expression of relief on her face.
"So the central bank keeps buying dollars and at the same time they ensure that there are enough renminbi in the market, so that the renminbi does not appreciate. But as a result of all the dollar-buying, the Chinese central bank has built up a huge amount of foreign exchange reserves. The Chinese foreign exchange reserves at the end of June 2011, stood at $3.2trillion, and that's a lot of money," I said.
"But is all that money lying in the vaults of the Chinese central bank?"
"Not at all. If it was lying in the vaults of the Chinese central bank, it wouldn't be earning any return. Of the nearly $3.2 trillion, nearly $2 trillion has been invested in financial securities issued by the US government and its entities. This money over the years has helped the US government finance its fiscal deficit. Fiscal deficit is the difference between what a government earns and what it spends. This is financed by issuing financial securities referred to as government bonds, which pay a certain rate of interest to the investor."
"Okay. That's interesting. So what has been happening all along?"
"China exports, US buys. China gets the money. The money is in turn invested in US government bonds, i.e. lent to the US. The US, in turn, buys goods from China from the money that is lent, and China earns dollars in the process. These dollars are again lent to the US and so the cycle continues."
"Oh, that's a lovely I scratch your back and you scratch mine, kind of routine that has been developed," she remarked.
"Yes, it is. So that has led to China having nearly $2 trillion of their foreign exchange reserves in US dollar-based assets."
"And is that a problem?"
"Yes, it is. The total government debt of the US is now around $14.3 trillion. Other than China, the other big debtors of the US are Japan, Saudi Arabia, etc. And the US government wants to raise more debt. On August 2, 2011, the United States passed a law which allowed it to increase the debt level of the government by $2.4 trillion from the current level of $14.3 trillion. With this the debt to gross domestic product ratio of the US is almost 100 per cent now."
"And that's why the rating agency Standard and Poor's downgraded US government debt (basically financial securities issued by the US government to finance its fiscal deficit) to AA+ from its current AAA rating, a rating it first awarded the US way back in 1941. AAA rating is the best rating any financial security can get from Standards & Poors. It tells the investor that any financial security with an AAA rating is the safest security to invest in with chances of default being next to zero. AA+ rating is one level lower, and hence a tad riskier," I explained further.
"So that means that the debt has reached dangerous proportions now?" she asked.
"Yes, it has. Other than borrowing money big time, the US government has also gone ahead and printed a lot of US dollars since the financial crisis began. Estimates suggest that $2.3 trillion of the money has been created since the September 2008, when the financial crisis first exploded. So both these things do not augur well for the US dollar."
"And what is China doing about this?"
"Well, what can they really do! As the famous British economist John Maynard Keynes remarked, 'If you owe your bank a hundred pounds, you have a problem. But if you owe a million, the has a problem.' So China clearly has a problem. Of late, they have been making some aggressive noises about this. The Chinese rating agency, Dagong Global Credit Rating, downgraded US-government's debt from A+ to single-A. AAA rating is the highest credit rating that the agency issues. An A rating is two notches below. A senior Chinese official even asked the US to 'cure its addiction to debts and learn to live within its means'. Estimates suggest that for the first four months of this year, China invested nearly 75 per cent of its foreign exchange surplus in non US dollar assets."
"So they are getting aggressive with the US, the Chinese are?"
"Yes, they are. But where else will they go? Europe is in big trouble anyway. Plus the kind of foreign exchange they generate, only the US bond markets have the ability to absorb. There has been news going around that they are quietly buying gold, other metals and physical assets as well. But these markets are not big enough to satisfy Chinese demand."
"So that leaves them very vulnerable, if the US dollar were to crash?" asked my friend.
"Yes, it does. They are in a Catch-22 situation. As far as the US is concerned, it can default on all the money it owes to China or happily continue to borrow more and even tell China: 'Frankly, my dear, I don't give a damn'."
Well explained for novices
by Sachin Nair (View MyPage) on Aug 30, 2011 05:06 PM
You have explained in a simple n lucid language to all those who are not much aware of this. Yes the article has not talked of how Govt of China is using its dollar pile up to finance Greece which was on the verge of collapse, buying large physical assets abroad, buying influence in troubled lands, spending incessantly (wasting rather) on hinterland development. Read Chinas Ghost cities... All of this without inherent demand... China will also pay a price sooner or later. But for the US... well that nation has to realise that the Concept of Living within ones means does have some meaning to it...
We will need a new set of Brettenwoods and new Financial system for the world in a few years. Structurally the present economic and world order cannot be led by a 19th Century system...
china has diversified its export
by Jugal Ahuja (View MyPage) on Aug 28, 2011 11:03 AM
from 2008 when recession hit usa,& EU,china realised that the days of massive exports to them were coming to an end. they therefore started promoting new markets like turkey, mexico, brazil, russia, argentina, egypt, sudan, nigeria, south africa, venezuela etc. today china is the biggest trade partner of all these countries. china's gdp in 2010 was over$ 5 trillion,it was because it had diversified its trade to these new markets,some business friends of mine who have visited some of the countries mentioned above say that the markets there are flooded with chinese goods, chinese cars are seen on their roads.
i had the privilege to attend world expo 2010 shanghai, saw many businessmen, industrialist, bureaucrats, ministers of latin american & african countries flooding the expo, orders to the tune of billions of $ were given to chinese companies .moreover MOU's were also signed between china & these countries .even for india china is its largest trading partner in 2009, & again in 2010.computers,its accessories,mobile handsets, every type of electrical/electronic goods etc bear the label"made in china". china for the last 3 years has put emphasis on its domestic market, it has a middle class of over 400 million.it is the largest market for automobiles, mobiles, computers, steel, cement, internet etc. so even if usa dips,china will be hurt but it has the resilence to come out of it.india has to watch out as its BPO, IT outsourcing is 80% dependent on usa.
China Economy is totally depend on FDI and goods Export to USA.If
by Loga (View MyPage) on Aug 24, 2011 06:46 PM | Hide replies
China Economy is totally depend on FDI and goods Export to USA.If any one failed both will sink. But Indian Economy is growing 9% GDP because of domestic consepction.Indian domestic savings rate is around 35% of GDP one of highest in the world.
Not enough brains for Indians
by Rajniisclever (View MyPage) on Aug 24, 2011 08:17 AM | Hide replies
Most of the people commenting on this article do not have the brains to understand what the author is saying (sachin, narayanaswamy, sauron, david dak etc.) - the concept is too complicated for their simple minds to grasp !!
So let me try to explain it in simple terms:
Sachin borrows money from Sauron and using that money buts stuff from Sauron. This goes on and on - one fine morning Sauron says he wants all the money back and will lend no more, Sachin says he is broke and will not buy anything more from Sauron because Sauron is not lending him any money. Now Sauron has goods in his hands that he cannot sell and he goes broke - and his GROWTH stagnates - he has assets but NO GROWTH anymore. Imagine Sachin as the US and Sauron as China - China economic growth will go from 10% to ZERO overnight, which is why china will never ever stop lending to the US.
As an aside, if the US goes down, the whole world, including India goes down with it, of course China stands to suffer the worst.
Re: Not enough brains for Indians
by David Dak (View MyPage) on Aug 24, 2011 03:18 PM
"China economic growth will go from 10% to ZERO overnight"
That is your wish. China has kept growth of ~10% every year since USA and west got into GFC since 2008. You must either has lived in another planet or dum........b. China does not raly on USA or any west country for growth. Even China lost those 1.5 trillion US$, China will still grow in the fast pace. If USa default its debt, it will not only lost face but the major holder of the debt - USA citizen will fight with the govt.
Re: Re: Not enough brains for Indians
by Ashwin (View MyPage) on Aug 24, 2011 10:49 PM
To whom are they going to sell to maintain that 10% growth? its one thing to be patriotic and another to keep eyes closed.
Re: Not enough brains for Indians
by Sam (View MyPage) on Aug 24, 2011 11:26 AM
"If the US goes down, the whole world, including India goes down with it & China stands to suffer the worst"
This statement is true ONLY in the Short run NOT in LONG RUN. India is mostly domestic driven market and China is export driven.
Steadily China is increasing its domestic consumtion and reducing its export dependency on USA. In the long-run China's economic growth will have LESS dependency on USA
US will collapse overnight
by Sachin (View MyPage) on Aug 23, 2011 08:36 PM | Hide replies
I think the author is based in the US that is why she is having this positive attitude. Dont forget how the asian crisis happened. When the dollar falls & US collapes it will just happen overnight. Remember the might USSR disintegrated overnight.And that day is not far.SO people who are crazy for US citizenship should think over this.
america nd its debts
by narayanasamy (View MyPage) on Aug 23, 2011 07:08 PM
it is very pathetic to c a giant turn into a dwarf. this is basically because america as a community has lived beyond their means. with all the high tech, knowledgeable economists such a thng happened. they hav to learn to live within the means available nd also learn to save some for the rainy day. this is to begin from every individual, the household, the corporates, the municipalities, the state governments nd the federal. one has to understand tat U CAN HAV AMBITION BUT NOT AVARICENESS. this is the main cause that has speeded up to this situation. my humble request to every one is to live within ur means nd also to save for a rainy day which makes u sound, which makes the municipalies sound, which makes the state governments sound and also makes the federal govt. sound. this is this simpleton's view which the modern day economists nd who want to rule the world may find it difficult to digest nd accept. alas, this is world.
This write must be a joker
by sauron (View MyPage) on Aug 23, 2011 02:24 PM | Hide replies
If Uncle Same does not care a damn why is it sending its Vice Presidennt to China.Mr Biden(VP) has not making any sound about human rights once in China which proves.Economics is not that easy that you just loan money and dont return.If the they dont return to China what will other debtors think.Should they not be right in thinking their money may not also be returned.In such a scenario any one can guess whats going to happen
There is a solution
by Dipak Bose (View MyPage) on Aug 23, 2011 12:11 PM
China can buy things particularly from USA. USA should not allow China to buy treasury Bond any more. In that case China cannot hoeard the foreign currency, but got to spend it, not on Gold, but on products.
what should china do with its money
by Supratic Gupta (View MyPage) on Aug 23, 2011 09:22 AM
Invest in india
by sam (View MyPage) on Aug 22, 2011 10:03 PM | Hide replies
Nice article, people who say that China will eat US, fact is China is at US mercy. They have no option but keep on giving US money. Even if the credit goes negative then also China will have to bail out US to keep it self a float.
Chinese trade with India
by Subhash Chavan (View MyPage) on Aug 22, 2011 09:17 PM
Why worry about USA and China trade? Stop Chinese import to India and see the difference in Indian economy.
chinese focus has already shifted
by ambi annaswamy (View MyPage) on Aug 22, 2011 06:02 PM
in their anxiety to live rich, US and Europe have used cheap Chinese exports. whatever the article may say, the bottom line is that that USA and Europe have created a monster in China with it's inexhaustibly huge foreign exchange reserves.
now Chinese are clever. they use these resources to buy minerals and metal mines all over the world including Australia, Brazil and South Africa and in many Latin American and African countries. they promote joint ventures with strategically located countries like Sri Lanka, Pakistan, Burma,Iran.... and they will increase their hold as world power status. China will seriously attempt push own local consumption to drive their factories. and those investments in third world countries will fetch them much needed foreign currencies. and this will offset a drop in their foreign exchange earnings on account of depressed US and EUROPEAN economy.
For Vital & Ashish sharma
by Sam (View MyPage) on Aug 22, 2011 05:55 PM | Hide replies
Thinking US per capita income 6-7 TIMES higher then Indian's IS A MYTH. It holds good only until US Dollor is strong
Purchasing power of US dollor is fast diminishing. US dollor is on the verge of collopse.
In a currencty CRISIS 6-7 times differance in per capita income CAN VANISH IN ONE WEEK. No need to wait till 2050
Re: For Vital & Ashish sharma
by Arun Jacob (View MyPage) on Aug 22, 2011 06:23 PM
u are wrong...that's enitirely ur OPINION man....a 14 trillion dollar economy cant collapse overnight.
Re: Re: For Vital & Ashish sharma
by Sam (View MyPage) on Aug 22, 2011 06:45 PM
In 2008 in very SHORT time US dollor came down from 47 Rs to 30 Rs
Dollor from 46 to 30 means in Real term the 14 Trillion Economy became 9 Trillion. I hope you know Mathematics to understand how it happens
by asdasd (View MyPage) on Aug 22, 2011 05:18 PM
Sure it will hurt the Chinese if the USA choose to default, but what would happen to their own economy should the Dollar collapse?
by Communal Award (View MyPage) on Aug 22, 2011 04:45 PM
If you owe your bank a hundred pounds, you have a problem.
But if you owe a million, Bank has a problem.
If India can bring our black money back, we'll have more money
by Grizzly (View MyPage) on Aug 22, 2011 04:03 PM
But congress would not bring it back.
Bring back our money!
Why China is at America's mercy
by iamindian (View MyPage) on Aug 22, 2011 03:57 PM
Because both are at the mercy of each other
MOST IDIOTIC ARTICLE EVER WRITTEN!
by Kabeer (View MyPage) on Aug 22, 2011 03:37 PM | Hide replies
This is the most idiotic article ever written and misleads the public. It would have been better had the author of this article shuts his mouth up.
1. USs outside debt is only about $ 4 odd Trln. out of this China holds $1.1 Trln and Japan $0.9 Trln aggregating $2 Trln.
BUT HANG ON THERE!
These investments are NOT repeat NOT necessarily owned
a. either by the Chinese Central Bank
b. Chinese Govt
c. Chinese Citizens
ALL THESE INVESTMENT ARE JUST HELD AND PARKED IN CHINA. That is a US citizen of Chinese Origin can buy USD and park them in China. A Chinese PRIVATE business organisation can buy USD outside China and park them in China. On all these investments neither the Chinese Govt nor the Chinese Central Bank have any control.
2. Fallacy # 2.
Ask yourself a simple question.
China like India is hungry for FDI. That means its own capital is not sufficient to drive growth. So how stupid and silly it is for the Chinese Govt and Central Banks to invest $1.1 Trln in US Treasury where the interests are the lowest and yet ask for FDI and pay higher rate of interest?
This author of the this article should be sent to a good school of economics to learn the fundamentals.
Re: MOST IDIOTIC ARTICLE EVER WRITTEN!
by Kabeer (View MyPage) on Aug 22, 2011 03:41 PM
An American or a European MNC having business interests in China may park its profits and surplusses in $ US Treasuries and park them in China.
This money doesnt belong either to Chinese Govt or Chinese Central Bank
Re: Re: MOST IDIOTIC ARTICLE EVER WRITTEN!
by somnath gund (View MyPage) on Aug 22, 2011 03:49 PM
right. That's why it's not just china problem. USD is being used as international currency is a big problem to world and Americans have not worked responsibly over the period
Idiot chinese worked hard and invested in dollar
by somnath gund (View MyPage) on Aug 22, 2011 03:33 PM | Hide replies
Idiot Chinese worked hard and invested in dollar which is going to collapse. Smart americans used same money got though low yeild bonds and earned more in last several decades. So americans are international DALAL. They are using international wealth created for it's own purpose. America used same money to attack nations and remain at number one.
Re: Idiot chinese worked hard and invested in dollar
by anil gupta (View MyPage) on Aug 22, 2011 03:50 PM
dumb idiot chinese have been milked by americans for decades ! What is wrong ? Fools and money never stay togather !
by Cyrus Sodabottleopenerwala (View MyPage) on Aug 22, 2011 03:31 PM
a cosmopolitan city like Mumbai
by Swami N (View MyPage) on Aug 22, 2011 03:27 PM | Hide replies
article. China today just happens to be the largest buyer of US debt just like Japan was in the 80s-90s.
The bulk of US debt is still held by US public. So if US were to default it will hurt the US citizens more than anyone else.
China has actually used a lot of money to buy (oil, food, mineral rights) assets and politicians all over the world including US, central Asia, Africa, Australia and so on and it has done that very quietly.
It is also heavily invested in Chinese infrastructure specially highways, massive dams, power stations and new cities/towns. They have world class rail and roads all the way to Tibet and POK.
All in all China has gained much more than US in their mutual relationship. They also hold a large influence on many countries.
Case in point are all of India's neighbors (Pak, Nepal, Lanka, Bhutan etc. with the possible exception of Bangladesh) listen more to China.
by georgeanobc (View MyPage) on Aug 22, 2011 03:13 PM | Hide replies
asians cant match europe,usa.this is reality
Simple if the debt is too high..
by Oye Kake (View MyPage) on Aug 22, 2011 03:09 PM | Hide replies
China should start buying land from USA; and consider that land as Chinese occupancy; Just like bank take over your house if you are not able to pay similarly China will take over USA if they are not able to pay.
Re: Simple if the debt is too high..
by panduranga vittal (View MyPage) on Aug 22, 2011 05:00 PM
Banker have the strenth and money to attack a poor loan defaulter. But USA has 13000 nucler boms ( Choina has 400) and USA has 5 times power ful weapons than Chiana. So how can you ( china) get money from a man (USA) who outplays you in all the aspects.