As we all know, Iceland went bankrupt in 2009 because of excessive foreign debt. At the same time, Greece is also on the verge of bankruptcy, and the insolvent Greece is still in the quagmire of the debt crisis. But in this world, there is a country that has more debts than Greece and Iceland combined, but it is still living well. This country is the United States.
The United States is a world power. This power is all-round, and of course it also includes the economy. However, the United States, the world's largest economy, has the world's most foreign debts, and it is China that lends the most money to the United States.
In the sketch "Donation" of the Spring Festival Gala, the sketch actor Zhao Benshan said this sentence: "Just as he used to be a cow in the United States, won't you come to us this year to borrow money?"
At the same time, the United States has the same joke. A talk show actor said: "In the future, I will teach my child two languages at home: one is English, so that he can survive in the United States; the other is Chinese, so that he can speak nicely to his creditors."
A joke is a joke in the eyes of some people, but in the eyes of a financial scientist, it may not be a joke. Some people in the financial world would be puzzled by this phenomenon. Jacques Atali, the founder of European Bank for Reconstruction and Development, wrote in his book "The Bankruptcy of the Country": "Anyone with a monthly income of less than 1,000 euros The Chinese will save their hard-earned money and provide Americans whose income is more than 10 times more than their own." Such remarks have caused controversy in a short time.
China is the largest creditor of the United States. There is no doubt about this, but the question is, why does China "lend money" to the United States? In fact, this is a misunderstanding.
Here to explain, the so-called "borrowing money" is not really providing interest-free loans to the United States, but the Chinese government buying U.S. Treasury bonds. The national debt is not that the Americans ask us to borrow money, but that we want to buy it ourselves.
With China's entry into the WTO and its entry into the international market, China has inextricably linked with the United States, the world's largest economy.Today, China and the United States are the world's largest trading partners. Because of this partnership, the Chinese and American economies are firmly tied together.
China is certainly the largest "creditor" of the United States, and the United States is also the largest buyer of "Made in China". From this perspective, it is also in China’s strategic interests to ensure that the US financial system does not collapse.
In the eyes of many people, the world economy presents a pattern of "developing countries are responsible for production and developed countries are responsible for consumption". The social security system of developed countries represented by the United States is very complete. Under this circumstance, the national consumption desire of developed countries has been fully liberated, the savings rate will also be reduced, and banks will have very little cash. As a developing country, people’s performance is just the opposite of that of developed countries. Due to the imperfect social security system and concerns about the future, the national consumption enthusiasm of developing countries is suppressed, so the desire to save is stronger. There will be a lot of cash.
At this time, if the developed countries represented by the United States want to maintain economic growth, they need to ensure the growth of consumption, so they need to find places to borrow money. As the largest developing country, China has naturally become a partner of the United States. This is one reason why the United States has borrowed money from China.
As for why China should lend money to the United States, this is because developing countries need to ensure export growth if they want to maintain economic growth. At this time, they need to purchase the national debt of developed countries to allow the U.S. dollar to flow back. After the return of the U.S. dollar, the United States, through debt financing, has disposable cash money, and only then will it import large quantities of goods from developing countries and drive the export growth of developing China. It is for this reason that many developing countries, including China, are willing to lend money to the United States.
Moreover, in the international financial market, US Treasury bonds have another purpose, that is, capital preservation. We know that the international financial situation is treacherous and there are great risks everywhere, especially in emerging market economies, they are always facing financial risks caused by rapid development.
In this case, linking oneself with the relatively stable economy, the United States, can relatively guarantee the safety of one's own capital.Therefore, the Chinese government is not buying U.S. debt to help the United States, but to preserve the value of its foreign exchange. This is an investment behavior.
The US government released treasury bills , which can also be regarded as an investment behavior, because they can repurchase treasury bonds at an appropriate time, maybe they only need to pay 99 yuan for the 100 yuan denomination of treasury bonds.
Many economically developed and emerging market countries hold large amounts of US Treasury bonds, and Japan has long been the largest creditor of the United States. It can be seen that holding US Treasury bonds is not a bad choice for an economic system.
The reason why the United States can borrow heavily is inseparable from its strong economic and financial strength. For one thing, they are good at making money, and the products they produce are sold all over the world. Secondly, the foreign exchange reserves of all countries are dominated by U.S. dollars. If you do not buy U.S. Treasury bonds, you will also suffer from inflation.
China is just doing what others have done and are still doing. The difference is that China doesn’t do it, and it becomes the world’s first.
China is not South Korea, it is not Singapore. China is really too big. There has never been a country with such a large population, and it is moving towards modernization at such an unexpected speed. If South Korea and Singapore are small dragons, then China is a giant dragon. The rise of the dragon can stir the spring water and add to the prosperity of the scene; while the dragon's soaring will inevitably overwhelm the world and completely change the pattern of the world. Thinking about it this way, it is almost inevitable that China will become the largest creditor of the United States, because only China has such a great courage.
The huge US treasury bonds held by China not only constitute a "hostage" situation, but also effectively tie the world's two major economies together. This is a very delicate political and economic balance.
However, in the long run, if the US dollar dominance is broken, the renminbi may achieve international free convertibility, and China’s foreign currency assets will not have US debt as the absolute core as it is today. However, under the current international financial structure, the status of the United States is still unshakable, and we can only continue to be the largest creditor of the United States.
This article comes from: "The First Book of Supplementing Finance"
Author: Wang Jihong
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