Wednesday, October 8, 2008

A strange world

The Chinese Communist Party conclave is speculated to have some effect on the global financial crisis. What just happened in the Western world's mind? The fate of Capitalism now at least partially depends on the CCP's decision. About 20 years ago, the biggest fear of CCP is that the western world will gradually change China into a capitalist society and it seems now that the western world may be a little bit too successful.

On the other hand, what the US political leaders worried about when they criticize the over-sized trade deficit with China is that someday China will reclaim this debt back. However, one policy the US politicians pressed to ease the trade deficit - the appreciation of Chinese currency RMB (yuan) - actually triggered this process of repayment, which is in the form that the US politicians fear most, very fast repayment, caused by the speculations on RMB appreciation. See this paper I cited before. An easier solution of this trade/money imbalance is to find some way for the US to repay its debt to China gradually, however, the proponent of this approach is simply absent in the past and now. The basic problem is that both sides are skeptical about the other side's intention. The US simply do not feel comfortable be nice with the Chinese government and the Chinese people, who learned from a lot of Japanese yen appreication--Japanese economy stagnantation problem, also do not feel comfortable to do more business with the US, which actually put some pressure on the Chinese government in dealing with US requests. Plus, problems like Taiwan and Tibet keep plague the relationship between the two countries, which make the co-operation between the two even more difficult.

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