Global Recovery Depends on China

Given that China holds the largest foreign exchange reserves in the world and is the largest creditor of America, it not only holds the strings in its hands, but its growth is crucial for global recovery. Thus, the world has begun to understand the grim reality. China is now your best friend.

Stories of international love and respect among nations do not wane in their strength and sincerity. The G7 meeting, the seven most developed countries in the world, in Rome, showed, or rather confirmed, what many already feel – that it is becoming an increasingly insignificant meeting. World media therefore did not spend too much paper and bytes on this somewhat worn-out event that did not bring anything particularly important, let alone revolutionary, in terms of the global crisis. One event, however, attracted the attention of malicious journalists, and it was the sudden warming towards China. Warming, because just a few weeks ago, a coordinated effort by U.S. Treasury Secretary Geithner and IMF chief Strauss-Kahn was made towards China regarding their overvalued currency, as viewed by Westerners. In response to this rather brazen accusation, China promptly reacted and smoothly rejected the allegations of manipulating the yuan, even retaliating with accusations of the West’s unsuccessful economic model, and the whole matter somehow stopped there.

The recent G7 meeting, however, radiated positive energy towards a West that was very offended until recently towards an even more offended China. In the official statement after the conclusion of the rather contentless meeting, a much gentler terminology was used towards China and their exchange rate, while the aforementioned Geithner somewhat sprinkled ashes on himself by extending a hand of reconciliation to his Asian partners. How reckless and unserious previous statements were, whether accurate or not, was confirmed by the stance of the new Secretary of State, Hilary Clinton, who emphasized that a ‘positive, cooperative relationship’ between Beijing and Washington is ‘vital for peace and prosperity, not only in the Asia-Pacific region but worldwide’, while also announcing the renewal of military contacts between the two countries.

Translated into more understandable language, these statements mean that America, in conjunction with its usual allies, quickly realized why pressuring China regarding the yuan is practically unfeasible. They are too weak. The West in these crisis times needs a well-disposed China far more than vice versa, especially considering that directing consumption inward, or the expansion of Chinese demand, could be the magic potion that will save the decimated economies of the West from their saturated and weary markets that neither want nor can buy much lately.

However, not everything is quite rosy. Just when the passions regarding the exchange rate began to calm down, the Americans rushed to score another own goal with the ‘buy American’ initiative, an idea of openly favoring American manufacturers in public works that did not please anyone, especially the Chinese. A statement from UBS about the meeting best describes the atmosphere and thoughts of those present: ‘G7 members realized that China must be included in decision-making about the global financial system instead of being treated as a pariah just because of exchange rate inflexibility. Furthermore, given that China holds the largest foreign exchange reserves in the world and is the largest creditor of America, it not only holds the strings in its hands, but its growth is also crucial for global recovery.’

Thus, the world has begun to understand the grim reality. China is now your best friend. In a statement, generally very benevolently intoned, the Chinese fiscal stimulus and continuous efforts towards a more flexible exchange rate were praised. It is worth mentioning that the yuan has already appreciated by 20% against the dollar since 2005, but that is still not enough for Washington, which would probably prefer the yuan to appreciate as much as necessary for their expensive production to finally become competitive again and for someone to buy those gas-guzzlers from GM, Ford, and Chrysler. (Vanja Figenwald)