It describes the detailed account of Blackstone and the fact that many Chinese people believe that they are the ones subsiding the United States because their government pays $3 billion for an eight percent Blackstone share. This did not look too good six months later because Blackstone lost approximately $1 billion at a time when there was an increase in the Shanghai Stock Exchange composite index.
The $1.4 trillion and counting reserves of China is very surprising because it meant that the living standards of the Chinese people are held down on purpose by the country’s leaders and was strengthened up in the United States. Because of this, Americans are having the time of their lives while the Chinese people are getting poorer. But, as contradicting as it may sound, this setting actually works both ways giving the United States lower rates while China enjoys a stable economy.
It was also presented that if the American dollar continued to decrease in value, China might opt to move some of its holdings to other currencies that are stronger than that of the United States, causing panic to the latter. This is due to the co-dependency of the two countries when it comes to economics. There is no doubt that a strong dollar would produce good results. It would mean that the economy of the United States is stable, which would equal to better lifestyle for everyone else including China. Prices of commodities would go down and American assets would go up. As well, a weak dollar would affect both countries negatively since they are co-dependents, resulting to increase in prices and decreased values of American assets.
There are questions as to why China has large amounts of money but still manages to be a poor country. It is estimated that their foreign reserves are the largest in the world with Japan only in second place. According to a former economist at the Treasury Department, Brad Setser, China’s U.S. dollar assets would account for about 70 percent of its foreign holdings.
While some Chinese people can be considered rich, the country is still very much unequipped as compared to developed countries. This can be documented and seen from public schools with no heating system, poor commuting systems, schools lacking in proper living accommodations for students, and poor health care. As with its neighboring Asian countries, China also seeks development including better schools, appropriate health care, and clean environment to name a few.
With regard to national savings, China would be the highest in the world. Its rate is at a high 50 percent compared to others only ranging from 20 to 30. The United States has reached a very low zero at some points, which demonstrates the fact that it consumes more than it produces. Although it looks like it is a good thing, it actually means that China is purposely keeping the people’s standard of living very low. A large amount of the country’s national income is “saved” and hidden as foreign assets. Because China’s economy is growing so fast, many Chinese people are tolerating this. How long they would be willing to tolerate this would be the question. It is very strange why the government is willing to provide low standards of living than what its people deserve.
The Chinese people are presented with enforced savings, which the government had decided upon from two choices. The first choice is to impose Ren Min Bi’s value in connection with other currencies instead of allowing the forces of supply and demand to direct it. This is done to prevent Chinese-made products from getting expensive, which in turn makes the Chinese factories busy. Even an increase in the Ren Min Bi’s value would produce a price advantage to China over other manufacturers. The second choice is to not use more money to be able to deal with the country’s needs directly. These choices are made because the government would like to keep China on its path of growth.
China fears that when it gives the opportunity to improve the people’s way of living, it would strengthen the rich-poor tension, and this is the reason why it does not increase its local spending. If the country tries to make it better for its people, prices would go up, which would sharpen the inflation and reduce the minimal purchasing power of most workers. And so, it is important that the government implements this policy. The country’s people would have the chance to live a better life although it is not as well as they could. Another positive effect is that the Chinese people would be protected from the risk of hyperinflation. As a result, the government would hold the nation’s wealth in paper assets in the United States shoring the relations between China and the United States.
At this time, more and more people are becoming aware that the Chinese government possesses large amounts of money that are not being used for its people. They are demanding more results, which places pressure on the government. This is a good sign that people are paying attention to their country’s economic growth and are concern regarding its status.
In any way, China still has the biggest advantage with regard to its relationship with the United States because if not for its billions of dollars everyday, the United States would not be able to keep a stable economy or even spare the dollar from collapse. The billions of dollars that China produces to the United States seem to make it harder for Americans to face their structural problems. The good thing is that China would probably not use this advantage because their economy would also be affected in the process. Its national savings, which were built up over the years, would be the same dollars that would go down the drain. As a result, they would only receive a small share before the value is lost.
China, in a way, can be considered the most powerful country because of the effect it can bring to the United States. It can also buy the largest companies in the United States, including Microsoft, Coca-Cola, or Proctor & Gamble, with its reserves. What more, its people are realizing that the government has this amount of money and is capable of providing better lifestyle to everyone.
It is frightening what would happen in case something goes wrong with the relationship and co-dependency of China and the United States. There is not much to do but to hope that this does not occur and that everything would go well in the end. Looking back, it seems that the two countries would have had made different decisions with regard to this. China would have chosen a slower growth path while the United States would rely less on China.