William Kaletsky has a piece we mostly disagree with but he makes a good point. Times:

China unambiguously favours domestic industries over Western exporters and investors. China’s determination to run huge export surpluses and maintain an undervalued exchange rate gives America and Europe cheap consumer products; but it also means lost jobs and the accumulation of ever-more foreign debts.

We’ve talked about the problems of the structural imbalances between Asia and the West previously. William Pesek of Bloomberg points to some potential dangers:

China’s currency reserves grew by more than the gross domestic product of Norway in 2009. Its $2.4 trillion of reserves is a bubble all its own, one growing before our eyes with nary a peep out of those searching for the next big one…if economies were for sale, China could use the $453 billion of reserves it amassed last year to buy Greece and Vietnam and have enough left over for Mongolia…

China aims to diversify out of U.S. Treasuries into other assets and commodities. The question that governments are grappling with is which markets are deep enough to absorb China’s riches? Gold? Oil? Euro-area debt?…Like all pyramid schemes, there’s no easy end in sight and things could end badly. If the dollar collapses, panicked selling by central banks looking to limit losses would shake global markets more than the U.S. credit crisis has.

It is in a way strange that China has not diversified its holdings into international equities, though it had laid the groundwork to do so more than two years ago. From the US standpoint, the clear need is to stop exporting debt, to become self-sufficient in critical areas, and to promote US exports where possible. Our current course is not sustainable.

This entry was posted on Friday, February 5th, 2010 at 5:17 am and is filed under China, Democrats, General, Republicans, business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.