Geithner in China: How Is China Weathering the Economic Crisis?


Ron Gettelfinger; Getty Images

Question: How is China weathering the economic crisis? And does China want to remain the United States’ largest creditor?

Paul Solman: With Treasury Secretary Tim Geithner in Beijing for the past few days, the financial world has been watching and listening carefully to the events of the trip to get a sense of how the two countries plan to cooperate to pull themselves — and the rest of the world — out of the global financial crisis. Such was the topic of Geithner’s major speech to Chinese leaders in Beijing yesterday.

Since there’s no way to know the accuracy of China’s growth rate, it’s hard to say how the country is weathering the crisis. I’ve written here before of China’s daisy chain (as I call it) with the more developed world: China brings tens of millions of its citizens from farm to factory to make things to export to us; we go into debt overspending on the exports from China; it then lends us the money to keep buying, thus keeping the chain intact. The consumption nosedive in this country, Europe, and Asia, then, would seem a catastrophic disruption. How can China NOT buckle?

And yet, we read is that growth has only SLOWED. Is it possible? Plausible?

Count me a skeptic, wondering especially about a crash in speculative commercial real estate there. And yet, China has reportedly taken a huge chunk of the money it’s been getting from U.S. consumers and is using it to stimulate the Chinese economy. Shaky as the data may be — and as varied as the estimates have been — as a percentage of GDP, China seems to be spending way more than almost any major country outside the Middle East, where the Saudis have been stimulating like mad.

Some argue that China is indeed weathering the storm well — because it has used Keynesian “counter-cyclical” policy (spend when you’re stagnating) to an extent other countries haven’t.

As to whether China wants to remain our largest creditor, I don’t think they EVER wanted to play that role. They simply HAD to, if we were to keep buying their products at the same pace.