[This article published on September 28, 2004 is translated from the German on the World Wide Web, http://www.chinaintern.de/article.php?article_file=1096404679.txt&printview=1]
Jyang Ruipring from China Foreign Affairs University’s Department of International Economics publicly warned the government against continually amassing dollars and balancing the US deficits.
THE OIL PRICE AND UNEMPLOYMENT CORRELATED
The fact that the state propaganda organ allowed the publication of this warning shows that this view is shared by the government. Jyang said the continuing fall of the dollar is inevitable. Therefore the high share of dollar purchases will lead to massive financial risks for China. The report “recommended” to local politicians drastically reducing the dollar share in favor of the Euro and the Yen. The report said: “The continued decline of the dollar is increasingly obvious. The latest drop in prices led to the disappearance overnight of $10 billion of Chinese currency reserves. Additional losses are imminent, the report says.
2/3 OF CURRENCY RESERVES ARE IN DOLLARS
According to official data, China’s foreign currency reserves amount to $480 billion. The author of the report warned against continuing to finance the American deficits with currency reserves. This portends “great political risks”. The RMB is firmly bound to the dollar. The exchange rate is 8.2777 to the US dollar.
What the report fails to mention (and the report was blessed by at least parts of the government since otherwise it could not have appeared in the China Daily) is the fact that China’s export boom is kept alive by China’s financing of America’s public and private deficits. If American consumers no longer import as much from China, the Chinese economy would immediately collapse. China depends on a cheap currency to keep its exports going. Unlike the perception in the West (slogan-a billion-market), an underdeveloped domestic consumer market exists today. The domestic Chinese consumer market only amounts to 10 to 30% of the total economy, according to different estimates. China’s citizens are too poor to keep the boom alive under their own steam.
In 2004 alone, exports from China to the US rose 35%. China depends on American consumers as much as the US depends on China’s financing of deficits.
The background of the sudden U-turn can be seen in the price of oil. China seeks ways to escape the oil crisis. By uncoupling from the dollar, lower prices for oil imports invoiced in dollars are sought. Oil was already at critical mass with the continued development of the economy.