The Dollar and the Dragon
ILLUSTRATION BY ED COURIER
The "good old days" of America's endless borrowing are over, or so say Chinese media reiterating the Communist Party's position following Standard & Poor's downgrade of America's AAA credit rating. No longer will America be able to "just borrow its way out of messes of its own making," said China's state-run news agency Xinhua and a slew of other Chinese publications.
The ensuing dips in financial markets around the world following the rating agency's decision only emboldened the Chinese government to press America to address its fiscal irresponsibility and "addiction to debt," according to Xinhua.
American's downgrade came as no surprise. After a drawn out back-and-forth of political theatrics, the plan that finally arose did little to assuage investor doubts in America's ability to rein in its heaping debt.
The political scolding, however, was unexpected. China has traditionally taken a non-interventionist approach toward the politics of other nations, particularly the United States. China remained silent during Washington's political impasse over raising the debt ceiling, but with the downgrade official and shock waves already felt, the Chinese government and its media mouthpieces are more willing to spit fire.
China's newfound confidence to openly criticize American political and financial affairs in recent weeks has been gestating since the financial crisis of 2008. The past three years have seen the Chinese government take little jabs at America to rein in its debt. The recent outburst, aside from a verbal reprimand, is meant to point out America's shortcomings and also bring attention to China's economic system, which isn't facing the same financial woes as America or other Western nations.
This toughened stance and threatening tone, however, will likely be as hollow as a fortune cookie, sans the telltale wisdom. To really stick it to America, the Chinese government would have to stop buying and start dumping its trove of American Treasury securities, which currently total $1.1 trillion. But that's a political move the Chinese government cannot afford to make.
China purchases U.S. dollars by the hundreds of billions each month to keep its currency, the yuan, weak and its exports competitive. It's manipulative, but it also keeps the dollar stable, preventing any devaluation to its growing trillion-plus dollar stockpile. So China, until it finds an alternative, must continue to buy. Offloading its dollar reserves is simply not an option.
China also used this opportunity to promote the need for a new global reserve currency to replace the dollar. But with the euro facing even harsher shortfalls, and China's yuan a still unsuitable substitute, there are simply no other options.
Stuck in a financial catch 22, China's obsessive dollar buying binge has caused a public outcry from China's burgeoning Web-based citizenry, which has traditionally overlooked the relatively arcane political issue. Posts on micro-blogging site Weibo, the Chinese equivalent of Twitter with a touch of Big Brother, exploded in the week following the downgrade.
"China is always bowing to the United States, when will China really rise up and cast aside its constant fear of the United States' reactions!" one micro-blogger posted.
Anti-American sentiment aside, the public's crosshairs have been predominantly set on the Chinese government.
"On the question of U.S. debt, China's strategic decision makers are pigs; they would rather let the people's money be used by others than let the money be used by their own people," said another posting, as published in a New York Times article. Most of the critical posts quickly disappeared from the website, removals not uncommon due to state censorship activities.
The public discontent isn't unwarranted. For a long time, the Chinese government has pledged to rebalance the country's financial system from an export-oriented economy to one that relies primarily on domestic consumption. Improvements to the country's social security system and broadening social safety nets for China's 1.3 billion people have also been promised.
With a laundry list of domestic problems rising inflation, a torrid housing market and decreasing loans for small and medium businesses the Chinese people have been left to wonder why their precious currency is being spent on the dollar, a bank note many see as well past its prime, instead of on solving China's problems.
The Chinese government's response is ultimately a move in face saving maneuvers and a way to maintain social stability. To sit back and do nothing shows weakness and would draw further public harassment on the government's already shaky credibility. To lambast America for its financial frivolity feeds the nationalistic pride many Chinese feel for their country's political and economic rise.
As critical as China's response has been, it does shed light on a serious problem affecting America's future.
Xinhua, despite oozing with Party line propaganda, makes some valid points: "Mounting debts and ridiculous political wrestling in Washington have damaged America's image abroad. To cure its addiction to debts, the United States has to re-establish the common sense principle that one should live within its means."
Brandon Taylor is a language consultant/foreign expert for the Beijing Review, an English language weekly newsmagazine in Beijing, China. He is a former correspondent for the TIMES NEWS. Read Brandon's blog at http://www.btay200.blogspot.com/. He can be reached at email@example.com.