China’s Fortunes Anchored to Those of U.S.

In the Dallas Morning News, columnist Jim Landers writes about China’s role in the rescue of mortgage giants Fannie Mae and Freddie Mac, and just how intertwined the Chinese and American economies are:

China is still running a huge trade surplus and has lots of money to lend. But some economists warn that this recycling is a strategic vulnerability for the United States.

Global finance expert Brad Setser wrote a report last month for the Council on Foreign Relations warning that owing the Chinese a lot of money could make it harder to do what we want in the world.

“I suspect this is the first case where foreign central banks exercised their leverage as creditors to push the U.S. government to make a policy decision that protected their interests,” Mr. Setser wrote of the Fannie-Freddie takeover.

Also related: “Why Hank Paulson will rescue China but not Lehman Brothers” from Richard Spencer’s blog. And, from the Financial Times:

The Shanghai composite index fell 4.5 per cent to 1,986.64, less than one-third its value in October last year when China’s bull market reached its peak of 6,092.

Some investors consider 2,000 points to be a big psychological barrier for the market and the government, fuelling speculation over whether Beijing might intervene to support the market now that it has sunk below that level.

The chaos in US financial markets compounded fears among investors about a slowdown in Chinese economic growth.

September 16, 2008 10:38 AM
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