China's Giant Pool Of Dollars | WAMU 88.5 - American University Radio
Filed Under:

China's Giant Pool Of Dollars

Play associated audio

China's central bank is sitting on a giant pool of U.S. dollars. It's the world's biggest holder of foreign reserves, worth over $3 trillion at last count.

All that money has piled up because every year, China exports more than it imports; it runs a trade surplus.

There are lots of reasons for China's trade surplus. In the past few decades, China has built an amazing manufacturing ecosystem. It's become the factory to the world.

But China's central bank has also given the country's exporters an extra boost.

It has kept China's currency artificially weak relative to the dollar, which makes China's exports cheaper in the rest of the world. It also makes imports more expensive in China.

So keeping the currency weak increases China's trade surplus on both sides of the ledger — it increases exports and decreases imports. And, year after year, China's pile of dollars keeps getting bigger.

This has become a problem for both China and the U.S.

It means U.S.-made goods are more expensive in China — which is why you often hear U.S. politicians talking about China manipulating its currency.

What's more, China's giant pool of dollars — much of it invested in U.S. Treasury bonds — makes China uncomfortably dependent on the health of the U.S. economy.

"Foreign exchange reserves have exceeded our country's rational demand," the head of the China's central bank said last year. This is an understated way of saying, enough already with the giant pool of dollars.

And, in fact, China has been letting its currency get stronger over the past few years. That has been pinching the nation's exporters.

"I'm making much less," Rosalia Yang, whose company sells imitation-wood flooring, told us recently, when we visited her factory outside Shanghai.

But the strengthening currency does have a flip side for people in China: It makes their imports cheaper. As a result, Rosalia Yang is looking to get into the import business.

"We would love to buy products from U.S.," she told us. "We have seen what is happening in China, so we believe the market needs to turn."

She's not sure what she'll import — maybe medical devices. In any case, she says, the U.S. brand is really strong in China; people associate Made in America with quality.

And as people in China get richer, they can afford to buy more American goods. now. If Rosalia is right — if the market does turn, and China's imports start to balance its exports — it could be a good outcome for everyone.

The U.S. would sell more stuff to China. Things would get cheaper for Chinese people. And dollars would stop piling up in China.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

NPR

Maggie Gyllenhaal Is 'The Honorable Woman': A Series Both Ruthless And Rewarding

The eight-part drama that begins Thursday stars Maggie Gyllenhaal as a British baroness with an Israeli passport. She's a fearless actor in a show full of kidnappings, seductions and betrayals.
NPR

When China Spurns GMO Corn Imports, American Farmers Lose Billions

China has been a big and growing market for U.S. corn. But then farmers started planting a kind of genetically engineered corn that's not yet approved in China, and the Chinese government struck back.
NPR

Congress Approves $16.3 Billion VA Health Care Bill

A 91-3 vote in the Senate will send the landmark VA legislation, meant to address widespread problems in the VA health care system, to President Obama for his signature.
NPR

Can Pinterest Compete With Google's Search?

Pinterest has created a database of things that matter to humans. And with a programming team that's largely been hired away from Google, the company has begun offering what it calls "guided search."

Leave a Comment

Help keep the conversation civil. Please refer to our Terms of Use and Code of Conduct before posting your comments.