Here's an interesting article,


China Will Keep Buying U.S. Government Debt
Its trade surplus depends on it.


Worries about China's finances are once again resurfacing in America. Commentators from Newsweek's Fareed Zakaria to British economic historian Niall Ferguson argue that Washington needs China to buy U.S. Treasury bonds to fund U.S. fiscal spending. And with Beijing embarking on a public spending plan of its own, the argument goes, China can't afford to play the role of America's lender of last resort anymore.

This fearmongering grossly misrepresents the U.S.-China economic relationship. For starters, China's two trillion dollars in reserves is already invested, so it cannot be used to fund future U.S. deficits. China can only invest future reserve accumulation in U.S. debt, and the only way it can accumulate new reserves is by running a trade surplus.

These new reserves cannot be spent at home. China's currency regime, in which the central bank intervenes to set the value of the yuan by buying dollars and selling yuan, does not permit it to convert any of those dollars back into yuan. If it did, reversing its role from buyer of dollars to seller would cause the currency to soar, and if that happened, Chinese exports would collapse -- not something Beijing wants.

Even if China wanted to invest outside the U.S., it couldn't. If China recycled its foreign currency into, for instance, the European Union or Japan, it would effectively force those trading partners to run large trade deficits with China, which neither can absorb. The rising yen and rising euro would slow both economies enormously. That leaves only the U.S. as an investment destination. As long as China wants to keep its exports to the U.S. strong, it must recycle the trade surplus back into the U.S. It is a symbiotic relationship that is unlikely to change anytime soon.

The U.S. government may also not need external financing anyway -- from China, or anywhere else -- to fund its fiscal spending program. As U.S. consumers save more, they will have to invest those savings. That additional investment will likely be more than enough to fund the higher fiscal deficit. The money that used to go toward financing private U.S. consumption will now go to financing public U.S. consumption.

Most importantly, there is no tradeoff between China choosing to finance its own fiscal spending or American fiscal spending. As the U.S. heads into recession, its consumers will save more and consume less. That creates a problem for China, which has overinvested in export businesses and infrastructure. The more the Chinese spend in China to stimulate consumption there, the less the U.S. government needs to spend in the U.S. to jumpstart American consumers.

In the short term, some U.S. fiscal expansion may be necessary to slow the pace of the U.S. and global economic adjustment and to give traction to Chinese fiscal expansion. In the long term, it is much healthier for the Chinese side of the economic imbalance also to be reduced, by an increasing Chinese consumption. The more China is able to boost demand in China, whether by increased household spending or fiscal expansion, the better off both countries will be.

U.S. and Chinese economic policies today are not incompatible. Both countries desperately need the same thing -- economic growth -- and both are trying to achieve just that. Worries about China's finances or intentions are not grounded in fact, and misrepresent a cooperative, complementary relationship.

Mr. Pettis is professor of finance at Peking University's Guanghua School of Management.

http://online.wsj.com/article/SB122806735083967109.html

To help our economy recover, why not do as the Chinese. Pay slave wages, beat those workers that are slackers. Put kids on the lines.
I remember a day when we didn't do business with Commies. They were boycotted because of their human rights issues.