The extraordinary events in global financial markets – the US subprime crisis, the collapse of banks, stocks plummeting – inspired me to write a blog post over at China Supertrends: Can China’s economy save the world’s?

Having experienced the Asia Financial Crisis of 1997 as an entrepreneur with my own trading company in Asia, I remember the crisis keenly for its effects on currencies we traded in.  As I have been watching the US subprime crisis unfold for nearly a year now, I recall that it was the US and the IMF who acted to stabilize markets then.  Now the US itself is in trouble.  So I pose the question, who will be the white knight?  Could it be China?

I felt so strongly about this issue that I submitted it as an OpEd piece and it was picked up by the Shanghai Daily.

Why did I write this article? There are a lot of good things in China: Its economy is strong, growing, and it has just successfully hosted the Olympics.  I was alarmed to see, then, the speculation from China Investment Capital Corporation’s Chief Economist that China may cut back its US dollar holdings. Then a few days later, a Chinese academic from Tsinghua University wrote, rather bluntly

..While minimizing the adverse effects of the US subprime crisis as much as possible, China needs to maintain its stand and uphold its national interest on the world economic stage.

He didn’t go into detail about what exactly China’s ‘national interests’ meant, but the tone of the article suggested that China should be maintaining its status quo, and letting the chips in the US fall where they may. In other words, hands off and let the US take care of its own mess.

However, if the CICC’s economist’s idea becomes reality and China actually stops buying US debt or starts selling what it already has, it would be an unmitigated disaster for the world.  At this time, China needs to be expanding its international monetary policy, strengthening the RMB, importing more and, no matter what, continuing purchasing new debt from the US without trying to take advantage of its weakness at this time. For better or worse, China and the US are in this together.

To paraphrase the writing of John Donne: No country is an island in our globalized world. Everybody has a stake. With global alarm bells sounding, can China passively wait for the US to get through its bailouts and hope that the world financial system remains intact? Or does this bell ring for another? Whom does the bell toll for? China, it tolls for thee.

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