As Barack Obama touched down in China, the American press seemed to settle on a single story line. The president, wrote the New York Times, will be “assuming the role of profligate spender coming to pay his respects to his banker.” And the Wall Street Journal highlighted “China’s Blunt Talk for Obama,” about US economic policy and the “nervousness” expressed by Chinese leaders that “huge U.S. budget deficits will weaken the dollar and slash the value of China’s massive foreign-currency holdings.”
The karmic symmetry of this state of affairs makes for an appealing fable. The once mighty United States, which for decades used the IMF to impose its will on the domestic policies of developing countries across the globe, is brought low by its profligacy and forced to beg sufferance from the miserly Chinese.
But just a few days here in Shanghai (on a trip sponsored by the China-United States Exchange Association) has convinced me it’s bullshit and the Chinese know it.
“There’s an old Chinese saying,” Yang Jiemian, president of the Shanghai Institutes for International Studies, told me. “If you borrow a hundred dollars, you are borrower; if you borrow a million dollars, you are not borrower.” There’s an English version of this, which is a bit zippier–“When you owe $100,000, the bank owns you. When you owe $100 million, you own the bank”–and it aptly describes the US relationship with China, which holds approximately 70 percent of its 2.3 trillion foreign reserves in dollars.
“Both the Chinese and Americans are in the same boat,” says Yang, whose brother Yang Jiechi is the Chinese foreign minister. “Chinese has always been trusting the United States. We say the dollar is as good as gold. In Chinese we don’t say ‘US dollars'; we say ‘US gold’–meijin.”
Now that they’ve amassed more than $1 trillion, the Chinese can hardly risk precipitating any kind of worldwide sell-off by moving to get rid of dollars en masse. They’re like the action hero in the movie who steps on a land mine, hears the click as it engages and then can’t move, lest he blow himself up. Furthermore, the Chinese seem intent, at least in the short and medium terms, to continue driving growth by exporting products to the United States (and holding down the value of their own currency), which means they’ll continue to amass dollars into the future. In other words, they’re stuck with us.
This state of affairs has created some popular disgruntlement in China. “Chinese government is under great pressure” from its citizens, says Yang. “Why do we continue to buy these bonds?” Currency Wars, a wildly successful bestseller by a Chinese Ron Paul figure named Song Hongbing, asks that same question, and argues that the United States is planning to devalue the dollar massively and screw the Chinese out of billions in wealth. (His solution: buy gold.)