Wednesday, July 20, 2005

Oil and China

Well, as you may or may not have heard, Chevron is also in the running for Unocal, though the offer is not worth quite as much as what the Chinese company Cnooc is offering...but apparently upper management is worried about the political ramifications of the move...

Anyway, so I don't know how much of it I agree with yet, but Tommy Friedman has an interesting column on why China continues to hold so many dollars, and why the U.S. allows them to get away with maintaining an undervalued currency:
You know that cheap mortgage you just got? Well, who do you think subsidized it? In many ways it was China. Americans don't save anymore, and import more than they export. Normally, a nation that did that as long and lavishly as the U.S. has would have to raise interest rates to get other countries to hold its currency. But America has not had to do that, in part because China has been willing to hold most of the dollars it has been accumulating - gained from all the goods it is selling America - despite the low interest paid on those dollars and the fact that they have been depreciating against other major currencies.

How come? Call it the Tiananmen-Texas Bargain. After Tiananmen, China's leaders struck an implicit bargain with their people, argued Steven Weber, director of Berkeley's Institute of International Studies. "The bargain is that China's voters give up the right to vote, and the Chinese government guarantees China's middle class 9 percent annual economic growth. China's political stability today depends on that bargain."

No comments: