Beijing (AsiaNews/Agencies) – For Beijing, the Federal Reserve’s plan to buy US$ 600 billion of Treasuries risks generating worldwide inflation. The latter is designed to cover the US deficit by generating more debts and indirectly devalue the US currency. Chinese criticism comes a few days before the G20 summit gets underway in Seoul on Thursday. Since the US currency is the world’s currency of reference and exchange, China wants to see it traded within a set range.
Speaking at the International Finance Forum in Beijing, Ma Delun, a deputy governor of the People's Bank of China, said he was concerned the Fed's spending spree “may add risks to the global economic imbalance, put pressure on emerging markets to adjust their international balance of payments and” cause “asset bubbles, all of which require our vigilance”.
For China’s Deputy Finance Minister Zhu Guangyao, the United States should "realise its responsibility and obligation as a major currency issuing country, and take responsible macroeconomic policies”. In fact, “The current situation is totally different from the time of the first round. There's no shortage of funds in the financial market," he said.
The G20 summit is a crucial test for many economic operators who hope the spirit of cooperation shown during the 2008 financial crisis is maintained. Many are concerned that national interests will prove divisive, especially between advanced economies and emerging nations.
G20 members are expected to discuss how to achieve balanced growth. Fast expanding economies like China’s will be asked to boost domestic demand. Conversely, big importers and spenders like the United States would have to favour savings and investments.
Many countries want precise targets, but the largest economies, the United States and China, are not likely to accept that. Instead, Japanese Finance Minister Yoshihiko Noda said that G20 members are likely to agree to a common approach, but will leave it to finance ministers to decide how it is applied.
In the meantime, Dai Xianglong, chairman of China’s National Council for Social Security Fund and a former head of the nation’s central bank, proposed setting a trading range for the dollar given its importance as the currency of reference and exchange. The world needs a stable dollar, Dai said, since the greenback is not only the US currency but also the “main international reserve currency”.
Since June, the US dollar has lost 13 per cent according to the Dollar Index, which tracks the U.S. currency against six counterparts, including the euro and the yen.
The dollar’s drop is especially worrisome for mainland China, which holds huge reserves in US dollars. The two economies are also so interlinked that a weak dollar and excessive global liquidity are pushing up commodity prices, stoking “imported inflation” in China, said Zhang Ping, the head of China’s National Development and Reform Commission.
Likewise, China and the United States are also flexing their military muscles. In August, the Obama administration sent the USS George Washington to do joint exercises with Vietnam, which has territorial disputes with Beijing in the South China Sea. Hanoi is embroiled with its erstwhile Chinese ally in territorial disputes over islands that have rich fishing grounds and great oil and gas potential.
Beijing prefers a bilateral approach to the issue, relying on its superior military and economic strength to impose its objectives. Conversely, the United States has invited itself into the controversies to counter Chinese domination of the Asia-Pacific region. Overall, the Obama administration is negotiating a nuclear deal with Vietnam, drawing militarily closer to Indonesia and South Korea, and boosting its trade with India.
Not to be outdone, Beijing is moving big times into South America, signing trade deals with many of the continent’s nations, especially those who are critical of the United States. Closer to home, China is strengthening its presence in the South China Sea, turning it into a “Chinese lake”.
Yet, whilst the Sino-US duopoly is important in some spheres, experts note, in economics, relations between the two keep on expanding.