THE U.S.-CHINA GEOPOLITICAL GAME
Hari Sud
UPI Asia Online, March 27, 2009
Toronto, ON, Canada, — With the United States in a serious recession and under a credit lockdown, there is an interesting geopolitical game in progress. U.S. Secretary of State Hillary Clinton paid a low-key visit to Beijing at the end of her four-nation tour of East Asia from Feb. 20-22. President Barack Obama had sent her to sound out the Chinese on supplying money the United States desperately needs.
As of January this year, China held US$739 billion of the U.S. Treasury debt. It cannot afford to buy more. The domestic situation is precarious: exports fell 25 percent in the last two months and unemployment is spiraling. The government is pumping huge sums into infrastructure projects to stave off social unrest.
Still, the United States is hoping to be the sole depository for China’s 2009 export earnings. That is what Clinton was indirectly asking.
The financial meltdown is causing deleveraging by both U.S. businesses and private citizens. The vaulted era of leveraged buyouts by businesses and uncontrolled consumer spending is over. Only the U.S. government, in the name of stimulus packages, has decided to spend its way out of recession. Its argument is that without this spending, 10 million people could be out of work.
Hence China comes to mind. China has two types of money at its disposal – high domestic savings, which could be pumped into its own economy, and a huge trade surplus, which could be used to lend money to the needy – such as the United States and Europe.
U.S. government debt to China is tied down in U.S. Treasury bonds and is not cashable. China has a total of US$1.8 trillion in worldwide reserves, 65 percent of it in U.S. currency. The Chinese consider the disposition of their reserves a state secret, hence the known information is incomplete.
It is known that at the end of 2007 China had about US$120 billion in mortgage-backed securities, or subprime loans, and $200 billion in sovereign funds, in addition to its U.S. Treasury bonds. This huge investment gives China a geopolitical advantage; but if the debtor cannot pay, it is a serious concern.
Hari Sud
UPI Asia Online, March 27, 2009
Toronto, ON, Canada, — With the United States in a serious recession and under a credit lockdown, there is an interesting geopolitical game in progress. U.S. Secretary of State Hillary Clinton paid a low-key visit to Beijing at the end of her four-nation tour of East Asia from Feb. 20-22. President Barack Obama had sent her to sound out the Chinese on supplying money the United States desperately needs.
As of January this year, China held US$739 billion of the U.S. Treasury debt. It cannot afford to buy more. The domestic situation is precarious: exports fell 25 percent in the last two months and unemployment is spiraling. The government is pumping huge sums into infrastructure projects to stave off social unrest.
Still, the United States is hoping to be the sole depository for China’s 2009 export earnings. That is what Clinton was indirectly asking.
The financial meltdown is causing deleveraging by both U.S. businesses and private citizens. The vaulted era of leveraged buyouts by businesses and uncontrolled consumer spending is over. Only the U.S. government, in the name of stimulus packages, has decided to spend its way out of recession. Its argument is that without this spending, 10 million people could be out of work.
Hence China comes to mind. China has two types of money at its disposal – high domestic savings, which could be pumped into its own economy, and a huge trade surplus, which could be used to lend money to the needy – such as the United States and Europe.
U.S. government debt to China is tied down in U.S. Treasury bonds and is not cashable. China has a total of US$1.8 trillion in worldwide reserves, 65 percent of it in U.S. currency. The Chinese consider the disposition of their reserves a state secret, hence the known information is incomplete.
It is known that at the end of 2007 China had about US$120 billion in mortgage-backed securities, or subprime loans, and $200 billion in sovereign funds, in addition to its U.S. Treasury bonds. This huge investment gives China a geopolitical advantage; but if the debtor cannot pay, it is a serious concern.
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