(1888PressRelease)
December 24, 2008 - Hong Kong – The world’s economic crisis has analysts worried but financial consultancy Zetland reports the United States and China can lessen the financial turmoil by working together.
The problem is, however, both economic powerhouses aren’t on the same page when it comes to a fiscal response to the crisis. A growing number of United States policy advisers argue only China, with its huge hoard of central bank reserves, can supply the U.S. Treasury with the new funding it needs to make up for the loss of domestic demand.
China, however, appears to be taking a different course and may pay for its own domestic spending first to fight off a sharp economic slowdown at home.
Demand destruction in China is working its way through the economy there as well. China is not powerful enough to prop up U.S. consumer spending and it is far more efficient for China to use its reserves to help transition the economy for the future, rather than use its reserves to buy U.S. government securities to stimulate the U.S. economy, says a commentary by the South China Morning Post’s Michael Pettis, carried on Zetland’s website.
China’s US$2 trillion in reserves cannot be lent to the US, it says. The money held by the People’s Bank of China has already been lent to the American, European and Japanese government. Only new reserves can be lent, and the only way for China to accumulate new reserves is by continuing to run large trade surpluses with the U.S.
If China were to stop lending money to the U.S., its trade surplus with Washington would disappear, something Beijing is desperate to avoid.
The commentary concludes the root of the economic crisis has been the capital and trade relationship between the U.S. and China, and if policymakers try to design policy without understanding these links, the outcome will be misguided policy, collapsing trade, and a worse economic outcome for everyone.
The report on Zetland Financial Group’s website is one of many offered each month. Zetland provides business and financial consultancy internationally and in the Asia region with an emphasis on operations in China.
Zetland was established in 1987 and has offices in Seychelles, Singapore, Tokyo, Belize, Geneva, New Zealand and Shanghai.
Zetland's professional consultants tackle a range of business issues – from investment opportunities to jurisdictional changes in legal, tax and accounting matters – for clients around the globe.
About Zetland:
The Zetland Financial Group - http://www.zetland.biz - provides the offshore investor with fiduciary Services, investment management and corporate advisory services, offering personal service and professional advice with total confidentiality.
For more information:
Jason Weatherhead
Zetland
jasonw ( @ ) zetland dot biz
+852 2525 7718
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