Word: china
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...while many Chinese take delight in America's plight and would like to end the close embrace that has brought China such prosperity over the past two decades, they are falling prey to delusions of grandeur. The fact remains that as much as China may want to go it alone, it cannot. (See pictures of the global financial crisis...
...begin with, it holds more than $1 trillion in U.S. assets, mainly in U.S. Treasuries. No other country or entity in the world could absorb those assets if China wanted to sell them, and with China's currency value pegged to the dollar, any massive sale would lead to a steep decline in the Chinese currency and economy. China's holding of U.S. debt is leverage only in a theoretical world where it could dump its U.S. assets or stop buying more. What's more, even a hobbled America is the world's largest economy and the most significant market...
...meanwhile, has been a source of billions of dollars in direct investment in China, from thousands of American companies big and small. While it's true that China doesn't need any one of these companies as much as each one needs China, China needs all of them and depends on them for everything from brand-name goods to know-how and capital. Beijing can't just snap its fingers and go it alone; its domestic economy is far too entwined with that of the U.S., its companies, its capital and its consumers...
There's little question that neither China nor the U.S. wants to be dependent on the other. China's rhetoric of late is proof, and you could easily demonstrate the same attitude coming from Americans. But each country has tied its economy to the other, and buyer's remorse notwithstanding, there is no immediate exit from this relationship. It remains a source of stability and prosperity for both countries. Two decades ago, China cast its lot with the United States, and until recently, that has brought it affluence. Now that things have gotten difficult, the Chinese want out. But when...
Karabell is the author of Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It (Simon & Schuster 2009) and president of River Twice Research (rivertwice.com...