China owns nearly one-third of US debt. Owning US treasury notes helps China’s economy grow by keeping its currency, the yuan, weaker than the dollar.
This practice keeps Chinese exports cheaper than US products, which is an ideal situation for China, since the top priority for China is creating jobs for its 1.4 billion people.
Why does China want the yuan to be weaker than the dollar? A weaker currency makes China more attractive to traders in global markets. This is part of the Chinese economic strategy, because it keeps Chinese export prices competitive. The nation does this by holding the yuan at a fixed rate compared to a currency “basket” in which most currencies are pegged to the US dollar. This is nothing less than deliberate currency manipulation.
China’s position as one of America’s main lenders also gives the country huge leverage. If China called in all of its debt at once, demand for the dollar would plummet. This would severely disrupt international markets along with the entire American economy.
China’s debt-holder strategy is working wonderfully for China’s benefit. This low-cost competitive approach has enabled the Chinese economy to grow 10% annually for the past three decades.
Is there a risk in allowing China to be such an important “banker” to the USA? Of course there is a risk, and it could easily be a huge risk. But at this point the USA has no way to reduce that risk. None.
[From an article published by AMAC.COM]
As always, posted for your edification and enlightenment by
NORM ‘n’ AL, Minneapolis