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What’s In It for China?

September 26, 2011

Robert Samuelson’s latest editorial at the Washington Post deals with the European economic crisis and how it should get out of it.  His proposal isn’t new, but it makes note of a player that doesn’t seem all that interested in the game.

One way to break this cycle is to create a new global lending facility that would buy European debt and, in the process, lengthen maturities and charge modest (non-panic-driven) interest rates. This would provide time for Europe to make gradual changes — reducing spending, raising taxes — to bring budgets under control.

Call it a “bailout,” a “rescue” or a “refinancing.” By whatever label, it probably couldn’t work without China. It has the money to become, in effect, Europe’s lead banker. Its foreign exchange reserves total $3.2 trillion and are growing by hundreds of billions of dollars a year. But the United States and Europe don’t want to call China, and the Chinese don’t seem to want to be called. The result: stalemate.

First off, I’m not so sure that guaranteeing the already lousy debt any longer will really help.  It seems to me that blowing up the Euro and starting over could be a better option, but even that’s just going to localize the problems.  If currency is going to stay locked, then it’s likely that the debt is just going to have to be eaten so that the economy can take the hit.

I’m more interested in the China comment, though.  He reinforces the comment in his conclusion:

Europe is caught in an economic pincer: slow-growth assaults from one side; fickle financial markets from the other. One obvious way out — the China option — seems barred by geopolitics. There is precedent. Historians blame the Great Depression’s severity in part on poor international cooperation. Economist Charles Kindleberger found a vacuum of power: Great Britain, the old economic leader, could no longer lead alone; and the United States — a replacement — wasn’t ready to help. Is there a parallel today between the United States and China? Are we repeating the mistakes of the 1930s? Unsettling questions.

 So is China really the next economic superpower?  It certainly has a nice balance sheet, though I’m not so positive a lot of the money isn’t cooking the books on a new level.  Part of being an economic player, though is balancing the imports and exports and opening to competition at some level.  China is happy to import raw material and items that benefit it’s aggressive growth.  The comparison with the US starts to fall apart in that the US in the 30’s was suffering from its own internal crisis, and that prevented it from stepping into the world economy.
 
Or wait… maybe that’s the point. While the US is trying to stay out of being the only player that’s “stable” right now, we’re in the “we suck less” portion of the equation.  Perhaps the real issue with China is that getting into the global scene could highlight all the internal issues that the country is having.  If the world is waiting for a “healthy” China to emerge an help us all out… well, we may be waiting for a while.
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