China seems to have been the most brazenly vocal critic of the US government?s inability to control its skyrocketing debt, going as far as to accuse Americans of ?living out of their means? and harboring a ?debt addiction?. Such unbridled anger may seem justified considering the fact that China is the largest stakeholder in the fate of US treasuries, holding about $1.1 trillion in US bonds and securities in its reserves.
Fears of a double-dip US recession only add to the existing tensions between Washington and Beijing, since a US financial crisis, which would probably be accompanied by another global economic slowdown, could further pose a threat to China?s ambitious growth that remains significantly dependent on its sprawling export industry.
However, the Chinese Dagong Credit-Rating company?s downgrade of US debt from an already derogatory ?A+? to a mere ?A? suggests an endorsement on the Chinese political front of Standard & Poor?s decision to do the same. The ironical decision by the agency, that some might consider a conflict of China?s own interests, strongly hints to the contrary that there may be more to the Dragon?s bustling self-confidence and verbal battering of US fiscal policies than a mere sense of urgency to protect its costly investments.
China’s reaction: genuine frustration or political snobbery?
In the wake of mounting international pressure on the world?s second-largest economy to liberalize its stringently state-controlled economy, China?s patronizing reaction to the US debt crisis can perhaps also be dubbed as an exercise in political snobbery, as the Communist-ruled economy exploits the situation to ?make a point? to those who most actively protest its policies: a democratic political system does not guarantee economic stability.
The much publicized recent political squabbling in Washington over a US debt ceiling complication that almost pushed the country into a debt default, and most certainly uprooted the world?s faith in the stability of its financial system, perfectly illustrates according to China why the latter is so keen to maintain air-tight control over its economic policies.
Need for change still inevitable
Then again, while the US may yet have said little in response to China?s scathing argument, the need for economic reforms presses even harder on China in the event of the ?twin debt crisis? that threatens to radically alter the fragile global economic scene.
The annual trade surpluses that China has taken painstaking moves to maintain and that have often been the subject of political scrutiny come into focus once again. Analysts argue that since US treasuries and other popular European securities are likely to lose their once unquestionable value, it hardly makes any sense for China to continue to stock up on them using dollars generated by heavy surpluses earned from bilateral trade with the US.
In a domino effect, if generating surpluses takes a backseat in Chinese economic policy, the Chinese exchange rate controversy could perhaps finally be chalked off as the Communist government might relax its staunch grip on the Renmibi.
Since China?s rebellion to comply with popular global demand is widely known, many assert that rectifying Chinese policy wouldn?t be that easy as the global export giant might channel its funds to a very viable alternate use- foreign direct investment, which has seen a dramatic surge in China?s balance of payments in recent years.
However, with an uncertain outlook for the global economy and China?s apparent allergy to risking its capital in foreign endowments that would be subject to fluctuating foreign exchange rates, speculation of a more ambitious financial scheme brewing in Beijing hardly seems unfounded, especially as opportunity arises for Tiger economies such as itself fill in a gap left strikingly open due to the waning financial power of the developed economies.
China: a new breed of world superpower?
If China does choose to liberalize its economy, it might find it in its interests to promote the Renmibi as an alternative to the three faltering reserve currencies of the world, which would immediately thrust its status upward among the world?s financial ranks. This could even provide additional stability to its prized currency, paving way for investments that would allow the economy to diversify away from manufacturing and export to higher-value industries such as resource and technology.
Nevertheless, China?s inclination to maintain its ?core competencies?, which paradoxically are the very obstacles that obstruct it from accomplishing such high-flying ambitions, signals a unique line of thought prevailing in Beijing.
As the Asian dragon continues to shun the ?conventional? path to supremacy chartered out by its Western stalemates- a move that has so far proved to be wise- its insistence to latch onto its ?humble roots? of Communism and dictatorship signal a new breed of ?super-economy?- a paradoxical dictatorship that moves forth as a ?collective force? in a carefully meted out direction, rather than a nation too absorbed in its conflicting ideologies and interests to weather a crisis of confidence.