Andrew Leonard at Salon sums up recent commentary on Chinese investments in U.S. bonds that is going sour, and provides some of his own:
A Chinese conspiracy theory, Andrew Leonard: Hardly a day goes by without Dean Baker finding something to get angry about in the pages of the New York Times or Washington Post, but on Friday morning the co-director of the Center for Economic and Policy Research delivered a double-dose of dyspeptic sputtering.
"Is China's Central Bank Run By Morons?" asks Baker, responding to a Times piece detailing the woes of the People's Bank of China, which has found itself stuck with a gargantuan pile of U.S. bonds that are turning out to be a pretty bad investment.
Baker can't understand how anyone could have been stupid enough, back in 2001 or 2002, not to foresee that the then mighty dollar would inevitably decline, given the size of the U.S. trade deficit. If the Times' Keith Bradsher was reporting accurately, argues Baker, when he quoted an expert in Chinese financial affairs as saying that many bank officials "resented the institution's losses," then the Times misjudged the importance of the story.
If the people who run China's central bank are really this ignorant, that should have been the headline of the article, which should have been on the front page.
I think Baker is overstating the case to declare that "Apart from buying bonds from Zimbabwe, it's hard to imagine how [the Chinese] could have made a worse investment." After all, if the Chinese hadn't been bailing out the U.S. financial system, where would the U.S. have gotten the money to pay for all the Chinese-made goods whose export has fueled China's economic rise?
To me, the most interesting tidbit in Bradsher's story was a reference to a conspiracy theory currently all the rage in China.
From the Times:
[The expert] said the officials blamed the United States and believed the controversial assertions set forth in the book "Currency War," a Chinese best seller published a year ago. The book suggests that the United States deliberately lured China into buying its securities knowing that they would later plunge in value.
"A lot of policy makers in China, at least midlevel policy makers, believe this," Mr. Shih said.
That nugget reminded me of a line from a long, if not particularly interesting or insightful essay about Chinese-U.S. relations by Treasury Secretary Hank Paulson in the current Foreign Affairs.
Despite the two countries' long history of interaction, they frequently display a stunning ability to misunderstand each other.
Seriously; the officials at the People's Bank of China probably aren't morons, but they do betray a breathtaking misunderstanding of the quality of recent government in the United States if they think we could intentionally pull off that kind of massive grifter's scam on China. We're not worthy.
Another line from Paulson's essay is apropos here:
Exploiting popular anxieties about globalization, economic nationalists in China are questioning the benefits of China's integration into the international economic system.
That sentence also holds true if one substitutes the words "United States" for "China." Both nations boast sizable factions who believe the other side is taking advantage of them. I don't normally find myself in Paulson's camp, but I've got to agree with him on this one -- the U.S. and China are not playing a zero-sum game. China's bankrolling of U.S. debt has been critical to the stability of the U.S. economy and the U.S. appetite for Chinese goods has translated into increased prosperity for hundreds of millions of Chinese.
That's not necessarily a bad thing.
Brad Setser comments here.