Today, however ravaged by the pandemic, America remains the world’s largest market.* The Beautiful Country is where China and other export countries compete to unload their products. Competition means that production costs have to be cut as deeply as possible.
Working people in export countries will be bringing home less and less. Consequently, they will have to consume less and less. At the same time, they will also have to save more and more for a rainy day if they can afford to do so.
The downward pressure on the wage comes with the downward pressure on demand. This being the case, a large export country like China has no good reason to invite foreign competition, no matter what and how it says to the contrary in the media.
In the meantime, China is more than willing to take in more foreign asset investment (FAI), hoping that more jobs would be created for its hard-pressed youths in particular. But, FAI cuts both ways. Yes, it may be a stimulus to China's job market. On the flip side, however, FAI will also pump more hot air into China's asset bubble. A bubble economy is no fun when it pops.
Here is a friendly reminder: Every bubble pops, sooner or later, and probably sooner.
China cannot afford to lose America which yields to Beijing huge trade surpluses on top of other benefits such as "tech transfer." That's why Beijing has to take cheap money printed by Washington. This may sound like a leap of faith on China's part, but here is the reality: USD accounts for 61% of the world's currency reserves, compared to RMB's meager share of 2% (International Monetary Fund's 2019 report). See the pie chart below.
The world is struggling with weak demand, day and night. Guess who is smiling?
* The EU is arguably the world's largest market, but it is not a nation. It is a large group of European nations.
---- Lingyang Jiang