This is an intriguing article from China Daily, written by a government researcher. It sheds some light on the question the whole world has been wondering about lately, i.e., how will China react to the collapse of America’s leading financial institutions at a time when it’s so heavily invested in US dollars? I am wondering if it’s representative of the government’s concerns, and whether it’s hinting at things to come.
The US government has its own criteria in determining what it ought to rescue, and Lehman Brothers was left to its own devices because of its high proportion of foreign investment.
As a result, foreign investors suffered more than their US counterparts from the collapse of the century-old financial body.
As the crisis unfolds, more American financial bodies are expected to follow in Lehman Brothers’ footsteps, with Asian nations and oil exporters holding a large sum of dollars expected to be the greatest victims….
The US financial crisis leads us to ask some questions.
First of all, is it the end of US financial hegemony? In addition to the latest financial crisis, the US has so far experienced another financial crisis since the turn of the century – the bursting of its technological bubble. Many foreign investors have suffered heavy losses in these two crises. Some economists even warned that such cyclical formation of bubbles will seriously compromise foreign investors’ confidence in the US financial market.
Second, what losses have Chinese financial bodies suffered as a result of this crisis? Available data shows that Chinese financial bodies had not purchased that many mortgaged US financial derivatives, and will therefore not suffer too many losses from this crisis. So, it is impossible for the country to be plunged into an economic recession like Japan in the 1980s.
More questions, more reflection, and a few hints of the usual propaganda (sense of victimhood, China is invulnerable to recession, conspiracy to protect US investors at foreign investors’ expense) so you may want to read it all. As my source [blocked in the good old PR of C] for this article writes,
What could be more unnerving than having your largest creditor begin pondering your financial demise?
“Indeed.” If this writer is speaking for the Chinese government, there are some grim implications here.
Richard Burger is the author of Behind the Red Door: Sex in China, an exploration of China's sexual revolution and its clash with traditional Chinese values.