The symbiotic relationship between China and America, also referred to as Chimerica, was built upon mutual advantages, such as a boost in exports for China in return for cheap credit provided to America. However, during the financial crisis it became apparent that the relationship had caused international economic imbalances, especially due to the incapacitation of the Dollar-Renminbi exchange rate mechanism.
This essay will analyse the relationship of China and America, and elaborate on the potential for an end of Chimerica with a focus on the role of the financial crisis. Furthermore, it will discuss whether there is a need for revaluating the Renminbi (RMB) and provide an assessment of Chimerica’s future prospects. The literature can be divided into liberal internationalist and nationalistic views. This essay follows a liberal view, but intends to give a balanced view.
Table of Contents
- Introduction
- The Sino-American symbiosis
- Drawbacks of Chimerica and the role of the financial crisis
- Revaluation of the Renminbi
- Future perspectives of Chimerica
Objectives and Key Themes
This essay analyzes the symbiotic relationship between China and the United States, known as Chimerica, focusing on its development, drawbacks revealed by the 2008 financial crisis, and the implications of Renminbi revaluation. It explores the potential for an end to this relationship and assesses future prospects from a liberal internationalist perspective, while acknowledging alternative viewpoints.
- The symbiotic relationship between China and the US (Chimerica).
- The impact of the 2008 financial crisis on Chimerica.
- The role and implications of Renminbi revaluation.
- The potential end of Chimerica and economic interdependence.
- Future prospects for the Sino-American economic relationship.
Chapter Summaries
Introduction: This introductory chapter establishes the context of the essay by outlining the symbiotic relationship between China and the United States (Chimerica), highlighting its foundation in mutual benefits—China's export surge and America's access to cheap credit. However, it notes the emergence of international economic imbalances, particularly concerning the Dollar-Renminbi exchange rate, as a consequence of this relationship. The essay aims to analyze this relationship, explore the potential demise of Chimerica due to the financial crisis, discuss the need for Renminbi revaluation, and assess Chimerica's future.
The Sino-American symbiosis: This chapter delves into the intricate dynamics of the Chimerica relationship, emphasizing the causal chain that fueled its growth. China's integration into the global economy led to a substantial increase in exports, primarily to the US. The RMB's peg to the USD, coupled with China's accumulation of US Treasuries, played a significant role. This provided liquidity to the US, kept interest rates low, and fostered American consumption. The chapter analyzes how this system led to a large US current account deficit and a build-up of savings in China. It also explores the reasons behind China’s lack of inflation and wage increases despite its rapid growth, attributing them to a large unskilled labor supply and capital controls.
Drawbacks of Chimerica and the role of the financial crisis: This chapter examines the negative aspects of Chimerica, focusing on the excessive interdependence between the two economies. The chapter highlights China's vulnerability due to its substantial holdings of US securities and America's challenges with budget deficits and unemployment stemming from manufacturing job relocation to China. It then directly connects Chimerica to the 2008 mortgage crisis, arguing that the influx of capital from China, not incentivized by higher returns but by maintaining a strong USD, contributed to an inflated housing market and subsequent economic downturn. The chapter then contrasts pre-crisis prosperity with the post-crisis recriminations, analyzing the differing responses of the US and China to the crisis, ultimately concluding that the crisis, despite predictions, did not mark the end of Chimerica but did exacerbate existing imbalances.
Revaluation of the Renminbi: This chapter focuses on the Renminbi's revaluation and its implications. It discusses the surprising devaluation of the RMB in August 2015, exploring the PBOC's justifications for this move. The chapter examines the market's reaction, noting the capital flight and concerns about economic growth. It also explores the potential reasons behind the devaluation, such as difficulties in transitioning to a consumption-driven economy and the need for economic stimulus. The chapter finally touches upon the RMB's inclusion in the IMF's Special Drawing Rights basket and the ongoing debates about the extent of China's commitment to fully liberalizing its exchange rate mechanism.
Keywords
Chimerica, Sino-American relations, economic interdependence, financial crisis, Renminbi, RMB revaluation, US current account deficit, global imbalances, exchange rate mechanism, monetary policy, consumption-driven economy, export-led growth.
Frequently Asked Questions: Analysis of Chimerica
What is the main topic of this essay?
This essay analyzes the symbiotic relationship between China and the United States, termed "Chimerica," examining its development, the impact of the 2008 financial crisis, and the implications of Renminbi revaluation. It explores the potential for this relationship to end and assesses future prospects from a liberal internationalist perspective.
What are the key themes explored in the essay?
Key themes include the symbiotic relationship between China and the US, the impact of the 2008 financial crisis on Chimerica, the role and implications of Renminbi revaluation, the potential end of Chimerica and economic interdependence, and future prospects for the Sino-American economic relationship.
How does the essay describe the "Chimerica" relationship?
The essay describes Chimerica as a symbiotic relationship where China's export surge fueled American consumption through cheap credit and the US dollar's role. This led to imbalances, particularly concerning the Dollar-Renminbi exchange rate.
What role did the 2008 financial crisis play in the Chimerica relationship?
The essay argues that the influx of capital from China contributed to an inflated US housing market and the subsequent economic downturn. While not ending Chimerica, the crisis exacerbated existing imbalances and revealed vulnerabilities in both economies (China's holdings of US securities and America's challenges with budget deficits and unemployment).
What is the significance of Renminbi revaluation in the context of Chimerica?
The essay discusses the surprising RMB devaluation in 2015, exploring the PBOC's justifications and the market's reaction (capital flight and concerns about growth). It examines potential reasons for the devaluation, such as the difficulty in transitioning to a consumption-driven economy and the need for economic stimulus. The inclusion of the RMB in the SDR basket and debates about China's commitment to exchange rate liberalization are also discussed.
What are the potential future prospects for the Sino-American economic relationship?
The essay assesses the potential end of Chimerica and the future of Sino-American economic interdependence, acknowledging various perspectives but offering an analysis from a liberal internationalist viewpoint.
What are the key chapters and their summaries?
The essay includes chapters on the introduction, the Sino-American symbiosis (detailing the growth dynamics of Chimerica), the drawbacks of Chimerica and the role of the financial crisis, the revaluation of the Renminbi, and future perspectives of Chimerica. Each chapter provides a detailed analysis of the respective topic, building a comprehensive picture of the Chimerica relationship.
What are the key words associated with this essay?
Key words include Chimerica, Sino-American relations, economic interdependence, financial crisis, Renminbi, RMB revaluation, US current account deficit, global imbalances, exchange rate mechanism, monetary policy, consumption-driven economy, and export-led growth.
- Quote paper
- Anonym (Author), 2016, Chimerica. The relationship between China and America, Munich, GRIN Verlag, https://www.grin.com/document/358858
