Wandering China

An East/West pulse of China's fourth rise from down under.

Letter from China: China scolds the U.S. over debt [New Yorker]

This is the Beijing Consensus manifesting on very real terms, signalling a very significant paradigm shift. Three years ago, China publicly ‘scolding’ (read this or this)’the U.S. on the global media platform would not have been plausible (murmurs yes, but not outright criticism like this)  –  ‘When we can expect a scolding from Xinhua, and a dismissive write-up from Dagong, it’s fair to acknowledge that the world has changed.

In other news, Michael Pascoe, business editor at the Age in Australia openly declares

‘ONE more time for the dummies: we are not part of the US economy. Every day, the US matters less and Asia matters more. The American-centric mindset that a recession in the US means a recession in Australia is hopelessly out of date. It hasn’t for the past two and shouldn’t for the next. Forget US woes, China keeps our economy strong (The Age, August 7, 2011)

– – –

Posted by Evan Osnos
Source – New Yorker, published August 6, 2011

Five years ago—no, three years ago—it would have been difficult to imagine picking up a Chinese newspaper and finding this: “China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets.”

That sentence—just one line in a blistering have-you-no-shame-sir piece carried in newspapers across China today—contains a collection of facts that reflect not only the alarming state of American financial health, but the historic reshuffling of power on the planet, and the growing desperation in China to insulate itself from American political and economic disarray. The commentary, one day after America’s AAA credit rating was cut by Standard & Poor’s, was dripping with sanctimony and self-regard but the most striking thing about it was how not crazy it was:

…the credit rating cut is an overdue bill that America has to pay for its own debt addition [sic] and the short-sighted political wrangling in Washington.
Fair enough.

…mounting debts and ridiculous political wrestling in Washington have damaged America’s image abroad…
Can’t argue there.

All Americans, both beltway politicians and those on Main Street, have to do some serious soul-searching to bring their country back from a potential financial abyss.

Probably not a bad idea.

When the Chinese state news agency, an organization not universally celebrated for its recitations of the facts, gets a U.S.-takedown this right, it’s reason to take note.

Similar reactions to the downgrade reverberated across China. What the Chinese reaction does not emphasize, of course, is that America’s peril will force China to confront its own years of delayed maintenance. Beijing’s dollar investments are estimated to account for about two-thirds of its $3.2 trillion in foreign-currency reserves; it also holds about $1.2 trillion in treasuries. For years it has known that it is overly reliant on the dollar, but it delayed diversifying in order to sustain its export economy. Now the value of China’s dollar investments will fall and it will be forced to seek alternatives at a moment when there are vanishingly few. “There is a class of assets out there that are more risky than AAA, but less risky than AA+. China didn’t consider these investments before, but now it would be forced to do so,” Li Jie, a director at the Reserves Research Institute at the Central University of Finance and Economics, told Reuters.

If it is any consolation, S. & P.’s assessment is not the most pessimistic available; that belongs to Dagong, China’s rating agency, which already downgraded the U.S. from A+ to A, with the possibility of further cuts. Like top Chinese central bankers, Dagong predicts the U.S. will be forced to extend the quantitative-easing program to purchase treasuries and stabilize long-term interest rates, the process known as QE3. When that happens, Dagong warns, it “will throw the world economy into an overall crisis; the status of US dollar will be essentially shaken in this process.”

When we can expect a scolding from Xinhua, and a dismissive write-up from Dagong, it’s fair to acknowledge that the world has changed.


Filed under: Beijing Consensus, Charm Offensive, Chinese Model, Culture, Economics, Finance, Influence, International Relations, Mapping Feelings, Media, Nationalism, New Yorker, Politics, Public Diplomacy, Soft Power, Strategy, The Chinese Identity, The construction of Chinese and Non-Chinese identities, Trade

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