China and the US have to work together to overcome economic crises together
The ties between the two countries have been bolstered by the 2008 economic crisis when China held onto US debt for the sake of world stability. Today, they are united by the challenges of economic reform and the resolution of international crises, starting with North Korea.
Hong Kong (AsiaNews/Agencies) – The United States must recognise and encourage China's key role, not only as a holder of US government securities, but above all as a player in stabilising the world’s economy and politics.
Brian Moore, a fellow at Pacific Forum, Centre for Strategic and International Studies, presented this thesis in an article published in the South China Morning Post, on 30 April.
In the United States, China is seen as the source of many of the ills afflicting the American economy. According to this view, China’s massive holdings of US debt have been used to keep the renminbi artificially low. This has devastated American manufacturing, subjected Americans to the will of Beijing, whilst Chinese state-owned enterprises set their sights on American acquisitions that put US national security at risk.
For Moore, there is some truth in this rhetoric; however, for him it fails to do justice to the facts. Indeed, when the global financial system was at risk of disaster, China step in as a key partner, and at times played a critical role that helped pull the system back from the brink.
During the onset of the financial crisis in 2008, the US Treasury estimated that China’s holdings of US securities totalled a tremendous US.2 trillion. As the crisis grew worse, the market was signalling to debt-holders to dump US paper.
Had China done so, it could have sparked a wave of short-selling that would have driven up the cost of US borrowing, and this increase would have hamstrung Washington’s ability to fund the US$ 800 billion stimulus package that eventually injected liquidity and jump-started the global economy.
The Chinese declined to take part in a Russian operation to undermine the US financial system. Instead, China’s holdings of US debt increased throughout the crisis and thereafter, probably to the dismay of hawkish, anti-American factions in China, said economist and former CIA East Asia specialist William Brown. “If they wanted to punish us, that would have been a great time to do it, although it would have come at a cost to Chinese exporters and holders of US debt,” Brown added.
As the crisis turned to the government-sponsored enterprises Fannie Mae and Freddie Mac, word came from Wall Street that several Chinese banks were withdrawing large sums from money market funds. At the time, the two corporations owned or guaranteed over US$ 5 trillion in residential mortgages and mortgage-backed securities, about half of the total mortgage market.
Zhou Xiaochuan, the governor of China’s central bank, in a phone call with then Undersecretary of the Treasury for international affairs David McCormick, confirmed the reports, but emphasised that the moves were not a top-level order, but made by mid-level bureaucrats and various financial institutions, and that the Chinese authorities would be giving guidance for them not to pull back from the money markets or from secured lending.
Whilst certainly self-serving, this did not go unnoticed or unappreciated in the United States. In fact, it highlighted the deep and trusting relationship between Chinese and American officials at the time that was critical to preventing a collapse.
Today the United States and China are united by a great challenge, the hard task of restructuring their economies. This requires boosting consumer spending in China and reducing its exports, with the US doing the opposite. Such a strategy entails a devaluation of the dollar and a revaluation of the renminbi.
Beyond economic issues, the two nations are also tied geopolitically by issues like North Korea. At present, kicking the putting off a resolution no longer appears to be on the table.
In this sense, acknowledging and reinforcing China’s positive role during the financial crisis for the narrow escape can be a strong starting point.
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21/08/2023 15:15
