Back in 2007, Niall Ferguson and Moritz Schularick wrote about “Chimerica” or the “symbiotic economic relationship” developing between China and the United States in International Finance. “Not only has plentiful Chinese and Asian labor increased global returns to capital; Chinese excess savings have also depressed US and global interest rates.” China did the saving and lending and America did the spending and borrowing – a seemingly perfect marriage.
In the most recent issue of Newsweek International, Niall Ferguson, a professor at Harvard University and author of the The Ascent of Money, says that in the past Chimerica looked like “a marriage made in heaven: both economies grew so fast that they accounted for about 40 percent of global growth between 1998 and 2007.” But the question now is “whether or not this marriage is on the rocks.”
“It’s a bit like one of those marriages between a compulsive saver and a chronic spender,” he writes. “Such partnerships can work for a certain period of time, but eventually the penny-pincher gets disillusioned with the spendthrift.” Beijing feels as though the country has enough US government bonds and is worried about America’s loose fiscal policy.
China may begin to “go it alone” and increase domestic consumption. “So a post-Chimerican China needs to be not only an empire, but also a consumer society…The global implications of this divorce are huge.” Will cooperation give way to competition? Will a strategic rivalry develop?
“We are a very long way from outright warfare, of course. The tectonic plates of geopolitics don’t move that fast. But the danger signs are there. In a succession of official and semi-official statements, Chinese spokesmen have signaled their interest in a substitute for the dollar in the form of International Monetary Fund Special Drawing Rights, or even gold. At the very least, a gradual increase in the share of euros and yen in Chinese reserves must surely be in the cards. But they could go further than that. It’s not impossible that, at some point within the next five to 10 years, the Chinese will feel ready to remove their capital controls and allow their own currency, the renminbi, to develop as a freely convertible international currency. At that point, the Chimerican marriage will be over. Not too surprising, really. As the name implied, such an unbalanced relationship was always something of chimera.”
The video above is Mr. Ferguson speaking at the Carnegie Council for Ethics in International Affairs last year about the global financial crisis and its implications. For his entire speech and a discussion on Chimerica, see the Carnegie Council’s coverage.
