[The Telegraph, U.K.]



China Daily, People's Republic of China

Must China Prepare for End of American Financial Hegemony?


What could be more unnerving than having your largest creditor begin pondering your financial demise? That might be the question Americans ask themselves while perusing this op-ed article from China's state-controlled China Daily. Ding Yifan, a Chinese government researcher, ponders whether the world is witnessing the end of U.S. global financial 'hegemony,' and complains that the Bush Administration is letting banks such a Lehman Brothers fail - which had large amounts of foreign investors - while saving banks with mostly U.S. investors. He closes ominously with the question, 'what will we do with our rising foreign reserves?'


By Ding Yifan


September 26, 2008


People's Republic of China - China Daily - Original Article (English)

The unfolding financial crisis in the United States leads us to consider whether this signals the end of that nation's long-established global financial hegemony.


The recent decision by the Bush Administration to set up a government body to take over all financial debt indicates its intention to rely on the market to cope with its current problems. It is expected that the U.S. government will use any means necessary to protect depositors and if the market proves inefficient, completely take over banks. But it remains unclear whether the U.S. government can bring the ongoing crisis under control.


But given their enormous losses, foreign countries which invest in the United States are in fact the biggest victims. With the widening of the subprime crisis, people expected the U.S. government to offer a helping hand to teetering financial bodies - over and above Bear Stearns. While the Bush Administration chose to inject much-needed funds into certain financial bodies, it stood idly by and watched other like Lehman Brothers fall apart.


[The Telegraph, U.K.]


The American government has its own criteria for determining what it should rescue. Because of the high level of foreign investment in the firm, Lehman Brothers was left to its own devices. As a result, foreign investors suffered more than their U.S. counterparts from the collapse of this century-old financial body. As the crisis unfolds, more U.S. financial institutions are expected to follow in Lehman's footsteps, with Asian nations and oil exporters who hold large amounts of U.S. dollars expected to be the greatest victims.


This isn't the first time foreign investors have suffered tremendous losses due to an American financial crisis. Japan was the chief victim, when the U.S. real estate bubble burst in the 1980s. It is estimated that by the early 1990s, Japan had suffered losses of around $70 billion, equivalent to its entire trade surplus with the United States during the 1980s. The East Asian nation then fell into a 10-year economic recession.



It would be impossible for developing countries which must absorb U.S. capital not to be affected by the economic crisis engulfing that country. For instance, a number of American corporations based in India are facing serious shortages of funds, prompting them to withdraw capital from the Indian market and resulting in a steep decline in the Indian stock market.




First of all, is this the end of U.S. financial hegemony? In addition to the latest financial crisis, the United States has experienced one other financial crisis since the turn of the century - the bursting of its technological bubble [aka/the dot com bubble]. During these two crises, many foreign investors have suffered heavy losses. Some economists even warn that the this cyclical formation of bubbles could seriously compromise the confidence of foreign investors in the U.S. financial market.



[Het Parool, The Netherlands]


Question number two: What losses have Chinese financial institutions suffered as a result of this crisis? Available data show that Chinese institutions havenít acquired too many mortgage-backed U.S. financial derivatives, so will therefore not suffer losses that are too serious as a result of this crisis. So it's not possible that this country will be plunged into an economic recession like Japan was during the 1980s.


Question three: Is this crisis in the United States an opportunity for China to rush in and buy cheap financial assets?


The outbreak of the latest U.S. financial crisis, which is now spreading to other nations, shows that the neo-liberal revolution launched during the 1980s has come to an end. At the time, a campaign was launched in Western countries to ditch Keynesianism - which advocates government intervention. Neo-liberalism called on market forces to be given free reign and government controls to be scrapped, especially on financial markets.


The problem is: What do we do if Western countries abandon the neo-liberal model which includes in the omnipotent role of the market? Will we continue to stick to the old development model of using exports to drive our economic development? And if this is the case, what will we do with our rising foreign reserves -caused by likely expansion of the trade surplus?


*Ding Yifan is an author and researcher with the State Council Development Research Center






















[Posted by WORLDMEETS.US September 27, 9:15pm]