U.S. Grows More Dependent on China

The remaining workers sit at outdated machines on the two floors of the plant, punching and pressing pieces of metal into objects like fishhooks and housings for Motorola mobile phones. "We used to work 24 hours a day," says Li, "but now one eight-hour shift is enough." He doesn't believe that American consumers will soon be buying Chinese products as enthusiastically as they did before the crisis. He prefers to follow the advice of the strategists in Beijing, namely to focus on new markets in Asia, the Middle East and Africa.

China's Lucky Number

Since the crisis began, tens of thousands of companies have gone out of business in the southern province of Guangdong alone. According to official figures, up to 25 million migrant workers throughout China temporarily lost their jobs. But the Guangdong economy is now growing at a rate of 9 percent again, and the entire country is expected to meet the party's 8 percent growth target this year. The ruling Communists see 8 percent growth (the number eight is considered lucky in China) as the minimum they need to secure their hold on power.

All this growth can be attributed to the government's massive economic stimulus program, which has enabled China's state capitalists to transform the country into an enormous construction site. In Guangdong, for example, an airport is now being expanded and a nuclear power plant is under construction. At the same time, the government is stimulating sales of appliances like television sets and refrigerators with its subsidies. Using similar methods, the government is likely to see to it that China surpasses the United States as the world's largest market for automobiles.

More or less in response to orders from above, state-owned banks have begun issuing new loans, leading to a 150-percent increase in lending compared with 2008. Many company bosses are diverting the money to buy houses and land, or to play the stock market. Prices on the Shanghai Stock Exchange have climbed by more than 70 percent since the beginning of the year. Liu Mingkang, the head of the China Banking Regulatory Commission, is already warning his fellow Chinese against "financial risks" and the development of bubbles in real estate markets.

Large state-owned companies, in particular, have expanded as a result of the collective stimulus campaign. But China's frugal 1.3 billion people have a long way to go before they are affluent enough to replace Western populations as the main consumers of the country's products. This is why the government has been propping up exports to such a massive degree. In September alone, exports declined by 15 percent over the same month in the previous year.

The Risk of Trade Wars

To keep prices on the global market artificially low for its shoes, T-shirts and computers, in July 2008 China began taking steps once again to ensure that its currency, the yuan, remains de facto pegged to the dollar. In doing so, however, China is accumulating bigger and bigger foreign currency reserves. To prop up the artificial exchange rate, the Chinese central bank has to siphon off massive dollar sums from the market.

Through its promotion of exports, China is doing more than just expanding the existing imbalances. The rising economic power is also risking serious trade conflicts with the United States. However, Washington, because of its strong interest in good relations with Beijing, is currently reluctant to officially denounce China as a "currency manipulator."

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