Bizchina

Dialogue seeks to reach consensus

(China Daily)
Updated: 2010-05-25 11:24

Zhang Monan, researcher with the State Information Center

The second round of the S&ED has begun and the yuan's exchange rate is reportedly part of the agenda. It has actually become a strategic tool that the debtor country uses to bargain with the creditor nation. China should take advantage of its position as the creditor nation to seek more benefits.

The current economic imbalance between the US and China reflects the unbalanced distribution of interest and benefits between the two countries.

The interest rate on US treasuries that China holds is very low (3 to 4 percent). The US has used the money from China's purchase of US treasuries to invest in Asian markets to earn a high profit (10 percent to 15 percent). It constitutes an unbalanced international capital flow and amounts to economic theft by a financial hegemonic power from the developing countries in the era of globalization.

In addition, as an immature creditor nation, China cannot use its own currency for lending to other countries, and so it has to face the risk of the US dollar devaluing, reducing the value of its dollar-denominated assets.

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The US is the No 1 debtor country in the world. But its debt has not restrained its actions. Instead, it has become the tool for it to maintain its financial hegemony. US overseas assets are mostly counted in foreign currencies, but most of its debt is counted in US dollars. It is quite easy for the US to increase its wealth by devaluing US dollars, thereby reducing the value of its debt. On the other hand, the US has made huge economic profits through investment overseas.

Debt relationship is a bargaining chip. It is high time China pondered how to play well its role as the biggest creditor of the US. It should be used by the country to resist outside pressure on its domestic policymaking and exert its own pressure on foreign countries.