Fareed Zakaria at PostGlobal

Fareed Zakaria

Editor of Newsweek International, columnist

PostGlobal co-moderator Fareed Zakaria is editor of Newsweek International, overseeing all Newsweek's editions abroad. He writes a regular column for Newsweek, which also appears in Newsweek International and often The Washington Post. He is a member of the roundtable of ABC News' "This Week with George Stephanapoulos" as well as an analyst for ABC News. And he is the host of a new weekly PBS show, "Foreign Exchange" which focuses on international affairs. His most recent book, "The Future of Freedom," was published in the spring of 2003 and was a New York Times bestseller and is being translated into eighteen languages. He is also the author of "From Wealth to Power: The Unusual Origins of America's World Role" (Princeton University Press), and co-editor of "The American Encounter: The United States and the Making of the Modern World" (Basic Books). Close.

Fareed Zakaria

Editor of Newsweek International, columnist

PostGlobal co-moderator Fareed Zakaria is editor of Newsweek International, overseeing all Newsweek's editions abroad. He writes a regular column for Newsweek, which also appears in Newsweek International and often The Washington Post. more »

Main Page | Fareed Zakaria Archives | PostGlobal Archives


China's Lifeline to the U.S.

For weeks the world has eagerly awaited word from the Obama transition team about the people who will head up the next administration -- the new secretaries of state and treasury, the attorney general. But one of the more crucial positions in the Obama administration probably isn't going to be filled for months and is likely to get little attention when it is -- the post of U.S. ambassador to China.

China has become the key to America getting through the worsening economic crisis. The American ambassador in Beijing (okay, this is a metaphor for all those officials who will be managing this relationship) will need to make sure that China sees its interests as aligned with America's. Or else things could get very, very ugly.

Everyone agrees now that Washington needs to spend its way out of this recession, to ensure that it doesn't turn into a depression. Economists on both the left and right agree that a massive fiscal stimulus is needed and that for now, we shouldn't be worrying about deficits. But to run up these deficits -- which could total somewhere between $1 trillion and $1.5 trillion, or between 7 and 11 percent of gross domestic product -- America has to get someone to buy its debt. And the only country with the cash to do so is China.

In September, Beijing became America's largest foreign creditor, surpassing Japan, which no longer buys large amounts of Treasury notes. In fact, though the Treasury Department does not keep records of American bondholders, it is virtually certain that, holding 10 percent of all U.S. public debt, the government of the People's Republic of China has become Washington's largest creditor, foreign or domestic. It is America's banker.

But will the Chinese continue to play this role? They have the means to do so. China's foreign exchange reserves stand at about $2 trillion (compared with America's relatively puny $73 billion). But the Chinese government is worried that its own economy is slowing down sharply, as Americans and Europeans stop buying Chinese exports. It hopes to revive growth in China (to levels around 6 or 7 percent rather than last year's 12 percent) with a massive stimulus program of its own.

The spending initiatives that Beijing announced a few weeks ago would total almost $600 billion (some of which include existing projects), a staggering 15 percent of China's GDP. Given its focus on keeping people employed and minimizing strikes and protests, Beijing will not hesitate to add tens of billions more to that package if need be.

At the same time, Washington desperately needs Beijing to keep buying American bonds, so that the U.S. government can run up a deficit and launch its own fiscal stimulus. In effect, we're asking China to finance simultaneously the two largest fiscal expansions in human history -- theirs and ours. Naturally China's priority is likely to be its own citizens.

"People often say that China and America are equally dependent on each other," says Joseph Stiglitz, winner of the 2001 Nobel Prize in Economics. "But that's no longer true. China has two ways to keep its economy growing. One way is to finance the American consumer. But another way is to finance its own citizens, who are increasingly able to consume in large enough quantities to stimulate economic growth in China. They have options, we don't. There isn't really any other country that could finance the American
deficit."

In his fascinating new book, "The Ascent of Money," Niall Ferguson describes the birth of a new nation after the cold war. He calls it Chimerica -- and it accounts for a tenth of the world's land surface, a quarter of its population and half of global economic growth in the past eight years. "For a time it seemed like a marriage made in heaven," he writes. "The East Chimericans did the saving, the West Chimericans did the spending." The Easterners got growth, the Westerners low inflation and low interest rates.

Like Stiglitz, Ferguson believes that China has options. "They will certainly try to keep American consumption going, but if it becomes clear that it isn't working, they do have a Plan B," he told me last week. Plan B would be to focus on boosting China's own consumption through government spending and easing credit to its people. "The big question today,"

Ferguson said, "is whether Chimerica stays together or comes apart because of this crisis. If it stays together, you can see a path out of the woods. If it splits up, say goodbye to globalization."

In recent years the most important and difficult diplomatic posting has unquestionably been the one to Baghdad. Over the next decade, the toughest and most crucial assignment may well be in Beijing.

There is a consensus forming that Washington needs to spend its way out of this recession, to ensure that it doesn't turn into a depression. Economists of both the left and right agree that a massive fiscal stimulus is needed and that for now, we shouldn't be worrying about deficits. But in order to run up these deficits--which could total somewhere between $1 trillion and $1.5 trillion, or between 7 and 11 percent of GDP--someone has to buy American debt. And the only country that has the cash to do so is China.

In September, Beijing became America's largest foreign creditor, surpassing Japan, which no longer buys large amounts of American Treasury notes. In fact, though the Treasury Department does not keep records of American bondholders, it is virtually certain that, holding 10 percent of all U.S. public debt, the government of the People's Republic of China has become Washington's largest creditor, foreign or domestic. It is America's banker.

But will the Chinese continue to play this role? They certainly have the means to do so. China's foreign-exchange reserves stand at about $2 trillion (compared with America's at a relatively puny $73 billion). But the Chinese government is worried that its own economy is slowing down sharply, as Americans and Europeans stop buying Chinese exports. They hope to revive growth in China (to levels around 6 or 7 percent rather than last year's 12 percent) with a massive stimulus program of their own.

The spending initiatives that Beijing announced a few weeks ago would total almost $600 billion (some of which include existing projects), a staggering 15 percent of China's GDP. Given their focus on keeping people employed and minimizing strikes and protests, Beijing will not hesitate to add tens of billions more to that package if need be.
At the same time, Washington desperately needs Beijing to keep buying American bonds, so that the U.S. government can run up a deficit and launch its own fiscal stimulus. In effect, we're asking China to finance simultaneously the two largest fiscal expansions in human history -- theirs and ours. They will probably try to accommodate us, because it's in their interest to jump-start the American economy. But naturally their priority is likely to be their own growth.

"People often say that China and America are equally dependent on each other," says Joseph Stiglitz, winner of the 2001 Nobel Prize in Economics. "But that's no longer true. China has two ways to keep its economy growing. One way is to finance the American consumer. But another way is to finance its own citizens, who are increasingly able to consume in large enough quantities to stimulate economic growth in China. They have options, we don't. There isn't really any other country that could finance the American deficit."

In his fascinating new book, "The Ascent of Money," Niall Ferguson describes the birth of a new nation after the cold war. He calls it Chimerica -- and it accounts for a tenth of the world's land surface, a quarter of its population and half of global economic growth in the past eight years. "For a time it seemed like a marriage made in heaven," he writes. "The East Chimericans did the saving, the West Chimericans did the spending." The Easterners got growth, the Westerners low inflation and low interest rates.

Like Stiglitz, Ferguson believes that China has options. "They will certainly try to keep American consumption going, but if it becomes clear that it isn't working, they do have a plan B," he said to me last week. Plan B would be to focus on boosting China's own consumption through government spending and easing credit to their own people. "The big question today," Ferguson said, "is whether Chimerica stays together or comes apart because of this crisis. If it stays together, you can see a path out of the woods. If it splits up, say goodbye to globalization."

In recent years the most important and difficult ambassadorial posting has unquestionably been the one to Baghdad. Over the next decade, the toughest and most crucial assignment may well be in Beijing.

Comments (56)

MatthewTan Author Profile Page:

America has so many billionaires and millionaires. And thousands of multinational companies. Where are all their money? I don't believe that they have spent it all. What happens to all the money they earned in China, and other parts of the world? Why can't they liquidate their overseas assets and buy up the Treasury bills? If they are unwilling to do, then let Congress force them to do it by legislation. Or, is their human rights more important than the bankrupting American economy (and world economy)? More important than the millions of jobs lost?

Do Americans worship human rights as gods untouchable?

Pardon me. I am from Singapore, and I know human rights is important to you. But I do not understand how important human rights is to you compared to the millions of joblessness. Here in Singapore, we cutting cutting wages to reduce employment, and the government sector and government-linked companies are taking the lead.

Citizenofthepost-Americanworld Author Profile Page:

Excellent, thanks for the link, GlobalPulse.

GlobalPulse Author Profile Page:

The jockeying around the G20 meeting made the shift Mr. Zakaria describes evident for all. And China isn't the only nation emerging into power based on the financial debacle.

See Link TV's Global Pulse episode, G20: A New World Order at http://www.linktv.org/video/3235

ejs2 Author Profile Page:

So the end result of all that stuff about the wonders of "free trade" is that the obscenely rich get ever richer, our American economy is unilaterally deindustrialized and dismantled, working and middle class Americans get squeezed, shafted and robbed of the good jobs which have always been the ladder up the social scale and America is completely beholden to our good friend, Communist China. Thank you Thomas Friedman and the rest of the knee-jerk free traders out there. Well, at least we can take China down with us when our middle class no longer has the money to buy their low-priced junk. I give a mordant chuckle whenever I hear the American Chamber of Commerce or our ostensibly American multinational corporations try to wrap themselves in the American flag, even as they continue off-shoring and otherwise stealing American jobs.

AnjuChandel Author Profile Page:

Though Chimerica sounds exotic but whether it will be a reality is to be seen. Dealing with China is not going to be easy for America and this could well be the most difficult diplomatic challenge for the Obama administration. Nevertheless, I truly believe that keeping aside politics and diplomacy, if Barack Obama tries to reach out to the Chinese leaders, he will succeed!

TominOhio Author Profile Page:

We need government stimulus because Americans are choosing to save more, rather then spend. As such, we will be able to afford to fund our own stimulus.

dummy4peace Author Profile Page:

I don't think effective protectionism can be initiated by a government in a democratic country. It takes its people to decide what and from where they want to buy. If the Chinese goods are of true value, many people will still buy it. What has happened is that after most jobs were shipped overseas by corporations, we lost many jobs and no longer have an income to shop even at Wal-Mart.

We also miss American-made products. It was fun to go shopping and see all different unexpected things. Now before you check the shelf, you already know where it's made and its quality. It's boring to go shopping in these chain stores. You knew the store layout and even where the bathroom in each of them would be around the country. It's a lot more fun to go shopping in an antique or consignment store. Shopping has to be a stimulating experience, too. I am very tired of seeing the same things in the same store. Globalization shouldn't discourage diversity.

forestbloggod Author Profile Page:

i nominate Ralph Nader for the post.

he should teach them a thing or two about product safety, and give them personal emotional coaching from his resevoir of warmth.

gcan1 Author Profile Page:

Let Bill Clinton retire! For goodness sake, this country is not so lacking in talent that we need to constantly fall back on famous--or infamous--names. Let Bill Clinton do some volunteer work for good causes to pay back all the opportunity that has been provided him. After all, he's made $100,000,000 in just the eight years since he finished his terms as president. There is more to life than the presidency, and there are more lives we can use to help this country than constantly trotting out the same old people. This hanging on to ex-politicians has become the making of a royal family. It's bad enough that we don't have term limits on every elected office in the country to assure some form of citizen government--age limits, too. That's especially true given the history of political illiteracy and unconcern in our electorate. That goes for federal judges, too. The people, the real government, should have periodic opportunities to allow judges to continue in office because they think and feel they are doing a decent job of adjudicating. Life tenure was a big mistake on the part of the Founding Fathers.

mosaic_templar Author Profile Page:

America's plan B, should China turn inward, is to monetize the debt (have the Fed buy bonds). By printing money and buying US Treasuries the value of the dollar would fall globally, including China's $2 trillion erasing much of her profit and limiting domestic help. China really only has one rational option.

kristn Author Profile Page:

What about former Washington governor Gary Locke as ambassador to China? Washington is a big exporter and is located on the pacific rim.

reader8288 Author Profile Page:

As a Chinese, I appreciate Mr. Fareed Zakaria's emphasis on cooperation and coexistence, an idea which transcends the cold war way of thinking.
Frankly speaking, I need to point out that his summary of China's choices as Plan A and Plan B seems to be clear but oversimple. At present, China is facing a Choice between spending more money on boosting domestic demand or lending more money to US treasury. Although the choice will finally be made by China, it is also affected by policies of the US. The author has regretably neglected this.
Even if China is willing and able to buy more US treasury bonds, it is facing at least two worries:
The first is that the US side may practise trade protectionism, which will in turn hurt China's export. Nowaday, some ignorant guys tend to believe that US jobs are robbed by China, so it
is reasonable for the Chinese side to have this worry before the new Administration openly and unswervingly condemnns protectionism.
The second is the uncertainties of US economic policies when its budget deficit skyrockets. Now the US government is focusing more on boosting demand, so borrowing as much money as possible is the most urgent task. The repayment is still not on the agenda. But several years later, this problem will be unavoidable. If the US chooses to pay off the debt by printing more dollars, China will suffer great losses incurred by dollar devaluation.
Besides these points, I need to note that if Plan B is implemented, it's also beneficial to the US economy. If China has a larger domestic demand, if its growth rate is higher, it is very conducive to world ecomomic growth, from which the US will also benefit. If the Chinese people have more money in their pockets, they can buy more US CPUs and benefit Intel, they can buy more cars and benefit The Big Three.

greenhouseneutral Author Profile Page:

Father Christmas is Chinese, check your christmas presents for Made In. He is the Banker too!

www.strategicbookpublishing.com/ZEROGreenhouseEmissions.html

bismarck88 Author Profile Page:

I am not sure if the Ambassador to China for the US is such an important position as Zakaria for Obama's administration. The New Treasury Secretary Timothy Geithner speaks Mandarin, so for now he is the Administration's point man for most Chinese (outside of defense issues). While he is fixing the American economy he can convince the Chinese to keep on buying US treasuries.

faithfulservant3 Author Profile Page:

About 15 years ago "60 Minutes" selected several dozen average Americans, broke them into groups of 6 or 7, gave them a copy of the federal budget and told them to do what most of us do daily; balance it.

And they did. Regular folks, not experts. I can't remember if they did it in a day or if it took all weekend; and yes there were vast differences in strategy.

If any fool can do this, why can't our elected leaders? It's time to cut the fat out of the government for real not run trillion dollar deficits-- or at least try. The failure of our leaders and media watchdogs in this respect is ridiculous.

robertjames1 Author Profile Page:

China, like the USA, will do whatever is its leadership perceives to be in its national interests.

America will adopt the strategy of spending its way out of the recession/depression because it is essential that as many people as possible are working and can put bread on their tables and a roof over their heads. In hard times, this maintains morale at high enough levels. If too many people become disenchanted by the possibility of starvation and homelessness then they will destabilise society, confidence will plummet and the situation will deteriorate.

The government will have to make some cost cuts. A good example is Defence. The US spends 40% of the worlds military budget. This is way too high and the benefits are probably much less than can be obtained by spending those same dollars elsewhere. In addition, if the US cuts defence spending and reduces its nuclear weapons levels then it can ask other nations to do the same.

Bush has taken the US to the edge of a new arms race by provoking Russia. Obama can reverse this trend and seek the prospect of a longer lasting peace.

This financial crisis may lead to long-term benefits. One of the silly illusions that Americans cling to is the idea that nirvana comes from being rich and living a life of iindulgence and fantasy. The new decent dream may be for each individual to meet their needs and to leave resources they do not need for others who have less than they do. Sharing is a great idea as opposed to concentrating wealth in the hands of a few.

For those of you who are neurotic and want to trot out the word 'socialism' do not bother me with your foolishness.

I am talking about ensuring that the poorest members of society have more than the minimun standards that the richest will tell them to accept.

I want to see a society that has an efficient and free market place in which most of us can obtain the opportunity to succeed. I do not want to see stretch limousines as a substitute for fairness.

This crisis is an opportunity for restructuring. Freddie Mac, Citibank, GM and all of the other 'let's go for broke' institutions that have endangered the well-being of America and the world should be broken up into smaller competitive units. This will lead to increased competition and stability and the chance that some of the new CEOs of the smaller units will not put greed ahead of stable corporations.

pblack Author Profile Page:

Before we saddle our children and grandchildren with $1trillion of additional debt why don't we do whatever is necessary to run trade surpluses. This is something that as a debtor nation should be doing anyway. Converting a $700b deficit to a $250b surplus would create the added aggregate demand we need without the added debt we should avoid.

brickerd Author Profile Page:

John Bolton!

Who's with me??

jhough1 Author Profile Page:

How can it be that a policy of printing money in the trillions has to be dependent on foreigners buying it? It seems like old-fashioned thinking.

But more basically export-led growth was the other side of the Clinton-Bush policy of inflating American consumption artificially. That policy is dead. China and other emerging markets need to develop an internal market for their goods instead of just giving them away for free. That has implications for currency that will put the American economy under discipline for the first time, but that is a path the world needs to travel.

charliebrown1 Author Profile Page:

Ferguson and Stiglitz both discount the fact that China's emerging middle class (which still is in the minority compared to the rest of China's poor), is becoming increasingly dissatisfied with the dissonance between economic freedom and political control. Add to that the fact that China has yet to reform much of its state run businesses and has a huge rural population, and we see that the PRC still has a lot of bumps on the road to overcome.

jsori Author Profile Page:

While one cannot argue with your position that the Ambassador to China will be critical, we must remember that the success of an Ambassador is directly proportional to his/her clout with the President. An Ambassador does not make policy. He tries to promote the President's policy.
How successful he will be is determined by who is on the other end of his calls to Washington. If the host country thinks he has clout he will be succressful.

Citizenofthepost-Americanworld Author Profile Page:

Mr. Zakaria, what strikes me in this conversation is that even at this stage of the game, so few people appear to take seriously your suggestion that "over the next decade, the toughest and most crucial (diplomatic) assignment may well be in Beijing". To read some suggestions as to what that assignment should consist in would have been interesting.

Given the unprecedented nature of the current US economic crisis, I believe this country needs to get a lot more serious, open and cordial, in its relations with China, should it hope to command indisputable international credibility and respect.

To tell you the truth, I was personally quite embarrassed to see how unprepared we must have been perceived, hosting the Chinese delegation, at the last G-20 summit, in Washington.

I would remind everyone here that on Nov. 14, when Chinese President Hu Jintao left for Washington with his wife, Liu Yongqing, to attend the G-20 summit on financial markets and world economy at the invitation of U.S. President George W. Bush, he was accompanied by:

1. Vice Premier Wang Qishan,

2. Ling Jihua, member of the Secretariat of the Communist Party of China (CPC) Central Committee and director of General Office of CPC Central Committee,

3. Wang Huning, member of the Secretariat of the CPC Central Committee and director of Policy Research Office of the CPC Central Committee,

4. State Councilor Dai Bingguo,

5. Foreign Minister Yang Jiechi,

6. Minister of Finance Xie Xuren,

7. Minister of Commerce Chen Deming,

8. Vice Minister in charge of the National Development and Reform Commission Zhu Zhixin,

9. China's central bank governor Zhou Xiaochuan.

Need it be said that such a delegation, together with Chinese President Hu Jintao, must have been expecting more in-depth, far-reaching discussions and decisions than the wishy-washy, self-serving results that came out of that summit?

While the whole world looks on, we can no more afford not to respond in kind to legitimate Chinese expectations. Beyond entertainment and photo ops, we must be prepared, in all seriousness, to accomplish fundamental work with all such high quality delegations, especially if they be Chinese. From now on, no country may allow itself to disappoint its guests in such a pathetic manner as we did at the Washington G-20 summit, should it still aspire to rank among the leaders of this multipolar world.

As it did relate to this topic, may I point out how lively your last GPS was, while providing ample food for thought?

max1941 Author Profile Page:

Watch out: China is getting bigger in all Latin America,Africa and european economy.
Also russian enterprises are moving fast in those places.Suggest caution and a strong foreign policy before its too late.-
No confidence in Bill Clinton,at all.All other designations I find them correct.
Good luck from Spain.MS

farkdawg Author Profile Page:

U.S. economists get China wrong, consistantly.

We need to manufacture more. A healthy economy is a balanced economy! This idea that if another country makes it cheaper then let them make it is great micro economics. But when your economy transforms to a service based economy you just lost your backbone and are a willow in the wind, getting whipped around when any minor recession hits.

And the only thing to cut is defense spending. Contradicting my point on manufacturing on its face, but a transition to Green jobs has to become a reality. We are not in a leadership position in green jobs. This is a major opportunity for us right now. We need to see it as such! Productive, constructive, conservative - green business. It can be a magic pill.

Mr. Zakaria wants an extension of the status quo, this is not tenable.

China needs us as much or more than we need them. Being their biggest customer is important. China owning our debt is not as important. If they sell it would be bad for the US Treasuries they still have. It would be like a major shareholder letting it be known that they were selling before they sold. The price would get driven down.

As many have said on this page, we need to stop running deficits. It seems impossible and for the next year it will be. The only thing to cut is defense. A transition to green jobs will cut our trade deficit, improve our national security, improve the environment, improve local economies, reestablish the leadership role the US is supposed to assume, and more!

All of this will reduce future toxic cleanups, "expenditures" for natural resources held elsewhere, build an economy and technologies to be exported and show the world that we still got it!


wperry Author Profile Page:

There is one critical point that you fail to mention--currency. President Obama and the Democtratic Congress have been hammering China that its currency is too weak. As a result of pressure from the Democractic Congress, the Administration has been pushing China to strengthen its currency and the rate has gone from 8.2RMB to the Dollar to 6.8RMB to the dollar. How can we expect China to keep buying our debt when,in fact, the US government is demanding that China keep buying a depreciating asset?? The Currency Crisis could make this situation become very ugly very quickly.

agapn9 Author Profile Page:

We need to drive down the price of gasoline by van and carpooling but keep the sale price at around 3 a gallon and invest the difference in renewable energy which can provide an 8 to 1 return on invesment. So instead of the 15 billion a year in renewable we need to hit the road running at around 50 and expand that by 10 billion a year for the next 40 years until we are not only independent of foreign sources of energy but are the providers of energy for the rest of the world.

j2hess Author Profile Page:

Zakaria is one of our most scholarly of pundits, and well equipped with good sense - as this comment shows.

China has a large investment in the US economy via its current bond holdings and is likely to protect that investment; neither can Chinese consumers rapidly acquire the new habits necessary to replace the US. (Their savings, as I understand it, are not merely the result of a different attitude towards savings but also by the risks imposed by a very thin social safety net - i.e., easy credit is not going to suddenly change habits.)

Do we need bond-financing for the bailout?

"The assertion is made that the United States has to borrow funds to buy its way out of the current recession. That is not quite true. In the past, the United States has not hesitated to just print up more money."

Yes, and we know where it got us - in a word, stagflation. We don't want to go there again, I think.

tropicalfolk Author Profile Page:

Mr. Zarakia's suggestion is utter nonsense: MORE DEBT!!!!

The US is the largest debtor in the world, at all levels: federal, state, and local governments are drowing in debt, as well as businesses, families and individuals. Americans have borrowed like crazy to buy houses, cars, and the latest electronic gadgets. American companies borrow like crazy to pay for such basic expenses as salaries and suppliers' bills. State and local governments borrow like crazy to pay for everyday expenses. The Federal government borrows like crazy to fund wars, and to keep taxes low.

That is unsustainable. The bubble -not just the housing bubble but the entire fiction of a booming American economy- has been puntured and its now collapsing. Why would China -or anybody else- bother to throw good money after bad?

The United States of America must start thinking about a major downsizing. Gone are the good times when the US was rich and had enough money to buy Louisiana from France, Alaska from Russia, and to grab Texas, Arizona, California and New Mexico.

The US should consider selling Alaska back to Russia, Hawaii to Japan. Maybe the Chinese would consider accepting some territory as payment for the current $2 trillion in debt, for instance the entire states of Montana, Idaho, Washington, Oregon, and Wyoming.

barracho Author Profile Page:

If you owe the bank $10,000, you better be careful. If you owe the bank $2 trillion, the bank had better be careful.

China may be the largest investor in American sovereign debt, but foreign investment accounts for 45% or so of GDP. Under current conditions, where people prefer the liquidity of cash (dollars) to the risk of illiquid investments overseas, it has been estimated that China will lose about 50% of that foreign investment. China's stimulus program (if it is really all new expenditure) would account for 16% of GDP, thus you have a 6% shortfall. Clearly, it is in China's interests that the West continue to spend.

This is even more the case given that Chinese exports account for another 15% (or so) of GDP, and the US represents more than half of that. If China stops purchasing treasuries and no entity, private or public, takes its place, then the dollar tanks. If the dollar really tanks, you have another considerable section of Chinese GDP effectively wiped out, pretty much in an instant.

Sure, China should boost domestic growth, to do otherwise is to continue to shift the economic pain overseas--which is what the US tried to do during the Great Depression. But if the renmimbi sharply appreciates, not only will they no longer be able to rely on export growth to the developed world, but new investment in the country from overseas will become more dear. (And, all current foreign holdings will have appreciated, which may well mean additional pressure to sell them and repatriate dollars.)

So, Asia's appetite for US debt might have slackened somewhat, but I imagine you won't need an especially competent Ambassador to Beijing for folks to see that sharp appreciation of the yuan would be bad for business.

jiggerjukha Author Profile Page:

I think Bill Clinton would be perfect for the job. His wife will be Secretary of State, so it will certainly appear to the Chinese that they have received the most high profile Ambassadorship that American offers; not to mention the fact that he is a former president. President Obama won't have to worry about Bill getting involved in other foreign and doemstic politicing, because he'll be busy in a defined role. And Bill Clinton's popularity around the world gives him a lot of leverage with Chinese; leverage that should be supplanted by the fact that he allowed top-secret nuclear technology transfers to the Chinese during his administration. As a sort of ironic bonus, he has his good friend, George H. W. Bush (#41), there to offer him advice, as a former Ambassador to China himself. A match made in heaven, really.

wrock76taolcom Author Profile Page:


One thing the article failed to cover is political despotism this financial power, China, represents. Supression of dessent is what the people pay for all this 'china glory'.

My question is: is it necessary to hold China together as one country since different minority groups' freedoms are stifled on such a large scale?

jiggerjukha Author Profile Page:

I think Bill Clinton would be perfect for the job. His wife will be Secretary of State, so it will certainly appear to the Chinese that they have received the most high profile Ambassadorship that American offers; not to mention the fact that he is a former president. President Obama won't have to worry about Bill getting involved in other foreign and doemstic politicing, because he'll be busy in a defined role. And Bill Clinton's popularity around the world gives him a lot of leverage with Chinese; leverage that should be supplanted by the fact that he allowed top-secret nuclear technology transfers to the Chinese during his administration. As a sort of irnoic bonus, he has his good friend, George H. W. Bush (#41), there to offer him advice, as a former Ambassador to China himself. A match made in heaven, really.

msreginacomcastnet Author Profile Page:

Most Americans I meet are sick and tired of buying "garbage" made in China. These products are far inferior to other countries craftmenship. I hope we start seeing more products made in USA or South American Countries. America built China's economy over the last 20 years.

Sophie2008 Author Profile Page:

A young mother recently visited my home with her pre-school daughters: Did I have any milk on hand for them? "2-percent," she requested, for the older one, and soy milk for the younger.

We've become a nation of "have it your way," self-flattering exceptionalists, that have overbought a lot of cheap crap. We need to clean out the basement and re-invent ourselves. No Chinese factory worker is going to save us.

elizondoalfonsoyahoocommx Author Profile Page:

Dear Mr. Sacharia:

how edificating, what an unexpected theme.- CHINA.- USA and new executive should follow the
first attempts toward this end.-

utznpt Author Profile Page:

I personally believe that a middle-class in China won't be such a bad thing. A strong China with an uneducated and poor citizenry is a terrifying vision of the future. It is a middle-class that "usually" buffers the excesses of political leaders...

tdwatkins Author Profile Page:

We are all in this mess together.

The greatest fear of the Chinese government is social unrest among the massess. Should America share this same fear?

It has been estimated that the Chinese goverment officals have to create 20-24 million jobs annually to keep the masses happy. The slow down in consumtion in the West has had a significant and direct impact on the "factory of the world's" employment situation.

Yin Weimin, Minister of Human Resources and Social Security for the PRC has been quoted as saying: "Employment and social stability are the top concerns of the Chinese Government." With the "Iron Rice Bowel" gone-- and with the loss of a job -- comes the inablitiy to eat or to have shelter over your head -- this is clearly something for the People's Government to be concerned about.

Since Deng Xiaoping opened China to the world, China has seen double diget econmoic growth. Given the toxic world economy,created in the USA, China is hitting the brakes and many of its people along with those here in the US are being tossed into the road.

The pain of being out of work and with little to fall back on is significant in both countries. The economists can argue if this is a recession or a depression-- but it matters little to the person unable to eat, and care for his/her family--- it is a depression and depressing!

It has been said that how we jointly manage the relationship between China, (with 1/5 of the world's humanity and the fastest growing large economy) and the US will impact not ohly the Chinese and American people-- but, all of humanity.

How our governments on both sides of the ocean manage not only the economic, but also the human toll of this crisis will impact the world for many years to come.

Both goverments should fear the anger that is boiling with the average, ordianry citizens that could boil over if the focus is on numbers, statistics and economic theories--- and not the real pain and fear that is in the heart of many Chinese and American citizens.

Both governments must remember, that this is about people that had no control, for the most part over the economic mess they find themselves in today.

The Chinese National Anthem goes in part:
Arise!
March on! March on! March on!
Let's hope we are marching on together!

dijetlo Author Profile Page:

Would it be asking to much of Americans to buy their own T-bills instead of relying on other countries to support our debt?
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Our Wall St Overlords decided long ago...
We're consumers baby, not producers.
Didn't you get the memo?

luyehara Author Profile Page:

Would it be asking to much of Americans to buy their own T-bills instead of relying on other countries to support our debt?

gcan1 Author Profile Page:

While all the economic aspects of our relationship with China are considered--along with those of every other country on the globe--we must genuinely improve the attention we give to imports from China to make sure they meet safe health standards. In the very recent past we have seen that China does not sufficiently regulate safety standards, not even on dog food. At the same time, we have seen that our Food and Drug Administration's deregulation and recklessness since the Reagan era has allowed dangerous imports to come into our markets and consumption. It is near impossible to find any items in a pet store, other than food, that are not made in China. Any sensible person should be leery of purchasing such items, or toys for children that are made in China, given China's careless production/export history and our careless import/inspection history.

dijetlo Author Profile Page:

It really is a global village.
--------------------------------------------
That means we're the global village idiot?
Well kiddies, it is what it is. Uncle Mao aint gonna pay your mortgage so get your cash in your hands, stock the pantry with canned goods and tighten up your chin straps. The crap storm has just begun.
Lord, spare us from the wrath of the economists.

twstroud Author Profile Page:

They should offer a low interest credit card with realistic credit limits. They'd encourage consumption and put loan sharks, Visa and MasterCard, out of business. They'd make money and encourage growth. But, some money still needs to go to domestic infrastructure. People are forgetting the Lunar New Year snow storm disaster. That can't happen again soon or party officials will be in even deeper trouble.

DBliss2 Author Profile Page:

What about Henry Paulson as Ambassador to China?

LHO39 Author Profile Page:

EDITOR: You have a cut and paste error in the article, an editorial stutter.

aozyaman Author Profile Page:

China should finance American consumers, but for a price of course. Say, how about the head of Dalai Lama, for starters, with Taiwan on top, followed by a major stake in oil interests as the main course? The dessert? Humm... lemme think... :)) In other words, the US is FUBAR, and that's the Americans' fault and no one else's. Sure you and I will not live to see it, but I bet our sons and daughters shall witness (and suffer the consequences) of her fall.

thmak Author Profile Page:

USA has been antagonizing China politically, militarily and economically for the past 50+ years. Thanks to Al Qaeda, USA has delayed focusing China as her next arch enemy, fighting Islamic terrorists instead of blunting Communist China's expanding influence. Still USA has concentrated her military force in the pacific rim, harbored China's corrupt officials, supported China's revolting organizations and enemies, prevented China from joining the international space station project. So Why China should help USA.

k6raman Author Profile Page:

At long last the realisation has begun. When you elect a President whose only qualification is being the son of a previous President and who only relies on hope/faith/belief (a born again and rehabilitated alcoholic), this is the price you pay. Unfortunately, the rest of the world is paying for it as well. It's high time that China/India look to their citizens to boost their economy rather than USA. It may be difficult i the short run but will make them stronger later. I don't see USA standing up on its own legs for quiet sometime. Citibank has got a cold now and it's only time before the other major banks will expose their skeletons of market/uregulated economy greed.

greg3 Author Profile Page:

The economic Olympics is over: China won. Why should it continue to buy US debt? It has all the factories, now. It has unilateral trade with other countries to get the mineral and energy resources it needs. It has a trillion dollars in currency reserves to stimulate its own economy and enhance domestic consumption. But first and foremost it has The Chinese People. Go into the Shanghai Museum if you have any doubt about their ability as a people to innovate and mass produce. They have been doing it for four thousand years. Meanwhile, America has been transformed through immigration into a multicultural mecca for the World's most inept people in search of easy lifestyles on borrowed cash and welfare payments. China would be insane to buy up any more US treasury notes unless they were backed up by the last thing America has of any value to China: land for food production. Welcome to America, newly minted Banana Republic. Our brilliant, unprincipled, greedy Ivy League ruling class has brought you to this through the religion of free trade, globalization, and open borders. Then they all learned Chinese and Japanese, married Asian wives, and said "So long! Enjoy your Mexican, Guatemalan, and Somali next door neighbors." And since economic punditry and the US presidency are menial jobs Americans refuse to do, some guy name Fareed is telling you the score in this article and some Kenyan named Obama will be inaugurated on Jan 20.

MPatalinjug Author Profile Page:

Yonkers, New York
24 November 2008

When push comes to shove, China will need to come to the painful realization that it will be wise for her to continue to buy U.S. debt.

China in fact cannot afford to let America lurch into a long and deep Depression which will have horrendous consequenes worldwide--including China, of course.

It is to the mutual national interest of both that America continues to buy what China produces and sells, and for China to continue to buy U.S. securities at least until such time as America is able to dig itself out of this present financial and economic hole and restores itself back to health, vigor and strength.

Mariano Patalinjug
MarPatalinjug@aol.com

osullivanc1 Author Profile Page:

Nice piece, but why quote a hack like Ferguson alongside such substantive thinkers as Stiglitz?
Joe Stiglitz is a real thinker and scholar, but Ferguson is a kind of neocon who has never had anything really original to say in his entire career. If we start taking guys like Ferguson seriously, then we are once again on the slippery slope to debacles like Iraq.

tenlime Author Profile Page:

I find it very hard to resist pointing out that as recently as the early part of this year, the West was bashing China viciously over a long list of issues. Now, the West are asking China for help. Will the bashing resume if and when China does help and things get back to normality?

kchari Author Profile Page:

OK It all sounds nice and beautiful repeating the same arguments of last 15 years or so. American CEOs killed the American manufacturing by shifting the factories overseas. If we provide stimulas to create more jobs which in turn will benefit Wall Mart and China , we will be never recover the American economy. We need jobs to provide American made consumption first more than import based consumption. The money has to circulate inside USA first before exporting to import consumption.

Aprogressiveindependent Author Profile Page:

The key to the United States getting through the current economic difficulties is our national government, not China or any other country. The federal government, especially the president, Congress, FDIC and Federal Reserve Board need to cooperate in massive corrdinated policies to continue to stablize the financial system, as well as provide a strong stimulus to the economy.

There will not be in this country another depression as during the 1930's, those who think this is a possibility do not seem to realize how the changes enacted by the New Deal and Great Society have provided a strong safety net for most Americans, which did not exist in 1932. Also, the Bush and incoming Obama administrations have not and will not attempt balanced budgets during economic slowdowns or recessions, as Hoover and FDR often did, which partially nullified some of the economic stimulus provided by New Deal public works projects, that employed millions of people.

Chinese exports are slowing, partly because of the global recession, but also because the appreciation of the yuan and increases in the wages of most workers have resulted in thousands of factories closing, many relocating to other countries with cheaper labor costs. Chinese leaders seem to be trying to stimulate greater buying of consumer goods by the Chinese and reducing their nation's economic dependence upon exports for much of its economic growth.

svand Author Profile Page:

The assertion is made that the United States has to borrow funds to buy its way out of the current recession. That is not quite true. In the past, the United States has not hesitated to just print up more money.

What this does, in essence, is devalue the US dollar. Suddenly, China and other countries which hold US debt, will be holding an empty bag of IOUs. That will not endear us to them, but we have been on a fairly shaky basis with the rest of the world for some time now.

The other effect of devaluing the currency this way, will be to take wealth away from the people who currently have it, and correspondingly take indebtedness away from the people who owe money. This is a horrible idea for those who have most of the money now. It will make the purchase of imported goods much higher, like petroleum, but that might not be such a bad idea, either.

In the very long run, printing more money might have exactly the same result as borrowing more money, except the final result will come sooner. The United States cannot continue to consume more of everything than it produces. At some point, our lenders will want to be paid back and we will have nothing left in our treasury to offer up. The result will be the same massive devaluation of the dollar, just put off until others figure out that we can never pay them back.

A shop owner may continue to give credit to a customer as long as he expects to be paid back. Until he figures out that his customer is a dead beat, he will keep giving credit just to keep up sales. At some point, he will cut his losses, and that is exactly what we can expect from the rest of the world.

hayeke Author Profile Page:

Americans should have confidence in your owe system. If the interests of buying America debt is greater tahn the losses, on the basis of comparing with other investment aspects, undoutedly, China will keep on buying it.

lohengrin Author Profile Page:

I don't see the difference between China's two options. If it spends money and boosts its own consumption, then China becomes the economic engine that can drive the world out of its pending recession. Keep in mind that the only way China can keep buying our debt is by running up a huge trade surplus with us. A Chinese domestic spending boost will not only be good our export business, it will also be good to run down our trade deficit with the rest of the world and as our trade deficit goes down, our ability to borrow will increase. It really is the same deal.

It really is a global village.

PostGlobal is an interactive conversation on global issues moderated by Newsweek International Editor Fareed Zakaria and David Ignatius of The Washington Post. It is produced jointly by Newsweek and washingtonpost.com, as is On Faith, a conversation on religion. Please send us your comments, questions and suggestions.