For the past years China’s economy have been growing amazingly and the world have seen an encouraging changes in China’s international payments. Due to the fact that Chinese economy is opening further up and is creating international economics relations, China balance of payments continue to expand and even created surplus.
China biggest international market is the US. By facilitating cheap labor, material and products to the US market, China compensate the America economic. Jacques Rueff once said “If i had an agreement with my tailor that whatever money I pay him returns to me the very same day as a loan, I will have not objection at all to ordering more suits for him” this is exactly what China does the US. China leads American companies earn big profit by using cheap factors of production. In addition since the US imports more that it export, the US have a trade deficit, creating an current account deficit. So in order to keep low interest rate, the Chinese government invest in the America economy through treasury bonds, this help the economy to be stable and ensure customer spending. So when US market consume Chinese product, China pays the US with treasury bond.
By buying this treasury bonds, China is making sure that america will continue buying its exports. Still many economist fear that a financial crisis might come if China refuse to finance U.S. deficits and switch their capital to other places. The reality is that China wants the America market, which is the most consuming market in the world, to keep buying their products. China wants to keep their export competitive in order to create job and continue rising surplus in its current account. On the other hand the US should concern about the rising foreign indebtedness that could creates financia ...