Chinese Premier Wen Jiabao says he's “worried” about his country's investments in U.S. Treasury bonds. China, he says, is watching economic developments in the United States closely.
Currently, China holds about $1 trillion of U.S. debt, which is a lot of reasons for concern. The $1 trillion represents about half of China's foreign exchange reserves, which have been building from its double-digit economic growth.
The Chinese premier's comments are somewhat akin to the little boy who pulls his sister's hair and then feigns innocence when the sibling starts complaining. China has contributed more to the current U.S. economic malaise than any other country.
While it may be impolitic to talk disparagingly about your banker, China has decimated the U.S. manufacturing base, basically eliminating or severely damaging one sector after another and forcing U.S. cotton producers and other groups to pursue “beggar-thy-neighbor” export policies just to survive.
Ten years ago, U.S. growers shipped 70 percent of their cotton to U.S. textile mills. Now, as most farmers know too well, 70 percent has to be shipped to foreign mills that buy U.S. cotton when they can't get it cheaper from other sources.
Why should China buy more expensive cotton from the United States? That's what the Chinese government promised to do as part of the accession agreement admitting it to the World Trade Organization.
Not only have the Chinese failed to honor such agreements, but the government is throwing up more barriers to U.S. imports. Chinese officials have announced new “Administration Measures for Foreign Suppliers of Imported Cotton” that could make U.S. merchants jump through more hoops to ship cotton to China and get paid for it.
The measures create a quality credit evaluation system or rating system for shippers. A “C” rating for shipping poor quality cotton to China presumably would preclude business with Chinese mills.
“The registration system requires importers to be of an unexplained ‘certain business scale,’ and report annual volume of cotton business, annual business volume to PRC, management structure, number of employees, and other privileged business information,” according to the American Cotton Shippers Association.
“It should be noted that such requirements are unprecedented in the world trade of goods and services, and if not violative of the spirit and letter of the governing international criteria, such requirements are not imposed by other WTO members nor does the United States require such information from Chinese importers.”
Some free trade advocates say none of that matters; that if the United States adopts liberalized trading agreements such as that now pending at the WTO, the resulting economic gains will push the world back into prosperity. Some also believe China will lead the world back to economic recovery.
Such optimism may be misplaced, according to some economists. Although the Chinese government is trying to cure its recession with a $586-billion stimulus plan, they note, it is distracted by massive social unrest not found in the United States.
In the last year, according to the Alliance for American Manufacturing, more than 20 million Chinese migrant workers have lost their jobs. Many of their bosses simply left their posts without paying their workers.
Chinese officials, who built a so-called economic powerhouse with subsidies to thrown-up factories, export rebates and currency manipulation that helped those state-sponsored enterprises undercut U.S. manufacturers, are now having to deal with thousands of demonstrations by angry workers each day, according to the AAM.