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China, worried at the ramifications the United States’ second round of quantitative easing will have on its economy, has recently taken the public stance that QE2 is bad for the world and downplayed the way it impacts China specifically.
On Nov. 3 the U.S. Federal Reserve outlined its plans to buy US$600 billion in long-term treasury bonds, which increases the money supply by that amount of money. This effectively devalues the U.S. dollar, increases inflation, and has repercussions for economies around the world.
It is called “quantitative easing,” and it is the second time the Fed has done it, leading to the abbreviation “QE2.”
The communist state’s initial reactions focused on how the QE2 damaged China’s economy.
This rhetoric fit into a general theme in Chinese media, according to Jason Ma, a host and political commentator with New Tang Dynasty Television. “There’s a strong anti-U.S. theme in Chinese society and media, and it’s helpful for the CCP [Chinese Communist Party] to blame the U.S. for its economic problems,” he wrote in an email to The Epoch Times.
After the G20, which met Nov. 11-12, the focus shifted to how the United States is harming the economies of countries around the world.
In public statements by officials and commentators, the message is that the United States is behaving irresponsibly, selfishly, and dangerously.
The QE2 is particularly problematic for China, however, because it manipulates its currency. Currency manipulation gives China an edge in exports and in receiving foreign investment—two load-bearing columns of the current Chinese economic structure.
Should QE2 lead to a devaluation of the dollar, American exports would become more competitive and Chinese imports to the United States would become pricier, helping to correct a long-standing, massive trade imbalance between the two countries. Also, the estimated US$1 trillion of U.S. debt held by China would become worth less and easier for the United States to pay off.
Soon after the QE2 round was announced, an opinion piece in China Radio International, one of the CCP’s mouthpieces for external propaganda, spoke about the impact the U.S. measures would have on China’s economy: “[The U.S. is] recklessly printing banknotes for its own benefit, shrinking China’s foreign reserves and expanding the property bubble.”
The piece laid out four points of harm the measures would bring to the Chinese economy, according to a translation by Chinascope. These include putting “great pressure” on the renminbi to appreciate and hurting China’s export economy, causing a “big increase” in the price of commodities, increasing inflation in China, and “forcing the Bank of China to increase the renminbi supply to maintain the renminbi exchange rate.” Similar arguments were made in China Daily.
This last point of complaint appears revealing in light of the analysis of other commentators on the Chinese economy, such as Michael Pettis. He has argued that the U.S.’s QE2 measures are only problematic for countries that manipulate their currency.
“There is a way for countries to protect themselves against QE2, but it would require that they give up intervening in their currency,” he wrote in a detailed blog post. “The only reason QE2 will create excessive monetary expansion in China is because the PBoC [People’s Bank of China] will insist on purchasing all dollar inflows at the exchange rate set by the PBoC and monetizing them.”
QE2 in this light becomes the U.S. countermove “in the great global game of beggar-thy-neighbor,” Pettis wrote.
When official and unofficial PRC media outlets switched the emphasis of their coverage of QE2, the rhetoric changed to one of defending the interests of the world, rather than criticizing the United States from a parochial, China-centric perspective,.
A headline by the Ministry of Commerce on Nov. 16 declared that QE2 will set off a double dip global recession. “In defending the QE2, Obama said: ‘it’s good for America and good for the world.’ But the reality is that it’s ‘good for America, but no good for the world.’”
China Securities Journal, which is owned by state-run Xinhua news agency, went further. In an article titled “The World Picks Up the Bill from the U.S. Quantitative Easing,” it argued that “this policy is causing suffering and upheaval around the world; it is eroding assets and exporting a crisis.”
Still other pieces in Xinhua talk of “not just censuring” the United States, but banding together to take active measures to countervail the U.S.’s “madly issuing bank notes.”
The timing of this rhetorical shift was convenient for Chinese leaders, Jason Ma says: “After G20 it was obviously better to get on the bandwagon and blame the U.S. for causing economic problems around the world, to criticize the U.S. from that perspective.”