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Ahead of G-20, China questions US's financial dominance

China's deep reserves and continued growth put it in a position of strength.

By Staff writer of the Christian Science Monitor / March 30, 2009


For years, China has been getting richer by feeding the rest of the world's seemingly insatiable demand for the things that it makes.

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At this week's Group of 20 summit, Chinese President Hu Jintao will find the boot on the other foot. His counterparts in the United States and Europe are desperate for China to buy more of the things that their countries make, to help pull them out of recession.

President Hu will doubtless remind the meeting that Beijing's $500 billion-plus economic stimulus plan is designed to boost Chinese demand for foreign goods as well as Chinese-made items. But he will also caution his colleagues not to put excessive faith in China.

Angel Gurria, head of the Organization for Economic Cooperation and Development, also warned here the other day that the world could not expect China to grasp a "sword and shield" to defend it from recession single-handedly. "I don't think we are suggesting that China should save the world," he says. "But if China does very well it will help the world."

Beijing is aiming for GDP growth of 8 percent this year. The World Bank estimates China's economy will grow by about 6.5 percent, offering international manufacturers one of the planet's rare expanding markets.

In fact, Chinese leaders have been voicing more concern recently over the US economy than about their own.

China is the largest holder of US dollar-denominated assets in the world. The bulk of its $2 trillion worth of foreign reserves is in US dollars. So, Beijing is frightened that the fast pace at which the US Federal Reserve is printing dollars could lead to inflation, a fall in the dollar's value, and big losses for China.

"To be honest, I'm a little bit worried," Premier Wen Jiabao told reporters earlier this month. "We have lent a huge amount of money to the United States. Of course we are concerned about the safety of our assets."

That very public poke was followed by an essay published last week by the governor of China's Central Bank arguing that the scale of the current global economic crisis was a result of the US dollar's status as the world's top reserve currency. He proposed a new, internationally managed global currency to fill that role.

And the Central Bank's deputy governor, Hu Xiaolian, pointedly suggested last Monday that the International Monetary Fund (IMF) should henceforth monitor the US economy as closely as it has traditionally overseen struggling Third World countries.

"In the current circumstances," she said acidly, "the IMF should regulate the financial policies of those major countries issuing reserve currencies."