If the global economy were the board game Monopoly, China would have the largest share of cash. The United States, with one fourth of the world’s gross domestic product, would own most of the properties.
But because the United States borrows 40 cents of every dollar it spends, much of what it earns goes toward paying the interest on its loans, much of it held by China.
As the most important creditor to the US, China can now exert significant pressure in bilateral talks, according to Domenico Lombardi, an international monetary expert at the Brookings Institution in Washington.
“The growth of the Chinese economy has been really supporting the growth of the global economy as a whole.” he says.
But China’s monetary policies have come under fire.
The United States says Beijing’s undervalued currency accounts for its large trade deficit with China and the loss of thousands of American manufacturing jobs.
But the Carnegie Endowment’s Yukon Huang says a stronger Chinese currency would eliminate the market for its low-cost goods, forcing China to adopt the Japanese model: competing against the United States in high-end markets and technology goods.
“So a higher exchange rate, in my view, actually creates more trade friction with the United States rather than less,” says Huang. “It actually makes the American consumer probably worse off rather than better.”
However, other analysts think China’s cheap currency is one reason why it is one of the world’s poorest countries. China’s per capita gross domestic product is only $4,000 per year, with the gap between the rich and poor growing and inflation rising.
Economist Domenico Lombardi warns that could mean trouble for China, pointing out that the current model is not sustainable.
From China News.net