If China uses its immense foreign reserves to rescue the American economy, will the story end there?
Many people are looking to China to save the world from its current economic woes. For example, Professor Yu Qiao, of Tsinghua University’s School of Public Policy and Management, was quick to suggest that China could assist president-elect Barack Obama. His article in the Wall Street Journal was titled: China Can Help: How else will the Dems finance their spending programs? With foreign reserves of US$2 trillion, he argued, China is best placed to help Washington. The Democrats will certainly need the help to finance their big spending plans. However, history shows that accepting Chinese assistance could be dangerous. A few weeks ago, the host of CNN’s GPS show, Fareed Zakaria, highlighted the risks of a China-funded bailout. He pointed to the 1956 Suez crisis, when British, French and Israeli forces attacked Egypt in response to the Egyptian nationalization of the Suez Canal. The Suez Canal was of strategic importance to Britain and France because oil bound for Europe had to pass thr
