CHINA/US: Wealth of Nations Redefined

Published on IPSnews, by Antoaneta Bezlova, January 12, 2009.

BEIJING , Jan 7 (IPS) – Chinese and United States leaders have hailed the 30 years of diplomatic relations between the two countries as one of the most defining bilateral ties of the 20th century, but Beijing and Washington are celebrating the anniversary in subdued mood …

… “As America’s largest creditor, China will expect the U.S. to exhaust every means to protect the safety of its investments,” Zha Xiaogang wrote.

”Otherwise, the Chinese public will voice their objection loudly and exert great pressure on Beijing to reverse the policy.”

But, as they gather to celebrate the anniversary, Chinese officials are also fully aware that the two economies are so interlinked that the U.S. needs a helping hand from Chinese capital as much as China needs the U.S. market.

With Americans consuming less, the knock-off on the Chinese economy with its export-driven growth model has become obvious in recent months. About one-third of Chinese exports, including re-exports from Hong Kong, are destined for the U.S. market.

With the collapse of trade, factory closures and layoffs have been spreading rapidly in the country’s export-manufacturing hubs.

Some of the workers have rioted to protests closures and claim unpaid wages. Chinese leaders are terrified that the economic crisis might herald a wave of social unrest for the country, endangering their own grip on power.

Having allowed the yuan to rise a little after 2005, Chinese leaders are now under intense domestic pressure to reverse course and depreciate it. As bankruptcies have multiplied, unemployment has risen rapidly.

Some economists argue that the appreciation of the yuan, urged by the U.S. and other western trading partners, has hurt China’s exports more than the slump in demand caused by the economic recession.

“Since 2005 the value of the yuan has risen nearly 30 percent against the US dollar,” says Zeng Xiangquan, an expert on labour issues at China’s Renmin University. “We would have had to deal with its negative impact on our labour situation even if there was no global recession.” (full text).

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