The Red Dragon is roaring. The headline news over the weekend was that Chinese President Hu Jintao called the currency system a “product of the past.” Hu believes that Chinese currency will likely become the world’s currency within the not-to-distant future. On the heels of that announcement, a Financial Times article highlights the role that China already has within a new system of globalization; one that supplants the U.S. as a key trading partner at the hub of the global trade wheel.
Here is a perfect summary of the current situation:
Over the past few decades, China has benefited hugely by hitching itself to a process of globalization where the rules were written in Washington and the American consumer was the buyer of last resort. China prospered by making first the socks, then the washing machines and finally the iPods sold at Walmart.
Now China is moving beyond cheap consumer goods to infrastructure such as power equipment. By supplying developing countries with the tools to grow, China is becoming a principal global investor. In so doing, it is entrenching itself as an engine of growth for the future, which has an added effect of laying the groundwork for its own currency to take a central role in the new relationships being developed.
At the heart of China’s global initiative is China Development Bank; counterpart to the U.S. Federal Reserve Bank. However, unlike the private Federal Reserve, China’s investment bank is firmly under state control, not the other way around, allowing it to openly invest domestically and abroad, while integrating coherent government policy decisions. Its investment strategy is rooted in entering a market where they can “buy up low-priced (financial) assets.” Lucky for them, that is the very direction the entire global market is headed.
The fact that China is set to be the new global boss was confirmed by the White House red-carpet treatment and state dinner given to the Chinese head of state yesterday, culminating with Chinese flags planted along Constitution Ave. signifying the changing of the guard. The full outsourcing of the American Republic has been finalized.
The world now awaits its new marching orders.