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
1. Introduction
2. The Sino-American symbiosis
3. Drawbacks of Chimerica and the role of the financial crisis
4. Revaluation of the Renminbi
5. Future perspectives of Chimerica
6. Conclusion
Research Objective and Core Topics
This essay analyzes the symbiotic economic relationship between China and the United States, known as "Chimerica," specifically focusing on the imbalances exacerbated by the financial crisis, the potential need for Renminbi revaluation, and the long-term future prospects of this bilateral economic dependency.
- The historical development and mechanics of the Sino-American economic symbiosis.
- Economic drawbacks and vulnerabilities arising from mutual dependency.
- The role of the global financial crisis as a turning point in the relationship.
- Currency policy debates, specifically regarding the Renminbi and US Dollar exchange rate.
- Long-term global economic influence and the future of the Chimerica construct.
Excerpt from the Book
3. Drawbacks of Chimerica and the role of the financial crisis
Although, Chimerica featured economic prosperity, it also has its drawbacks. The two countries are overly dependent on each other, as China’s high GDP and export growth was primarily fuelled by the American consumption. Further, the value of the USD is subject to security holdings of China, which in turn is concerned of the USD’s value, due to the large proportion of US securities within China’s reserves. This makes China not only vulnerable, but also dependent on monetary decisions that are based on the benefits for the American economy, not the Chinese economy (Dyer, 2009). Furthermore, America’s budget deficit increases, but exports cannot be stimulated, as long as the USD is pegged to the RMB and is not able depreciate and thereby become more competitive (Wolf, 2009). Moreover, America was faced with increasing unemployment rates, as manufacturing jobs were “exported” to China (Garrett, 2013).
Besides, Chimerica built the basis for the supreme mortgage crisis, as the flow of capital from China to America was not incentivised by higher returns, but by China’s interest in a strong USD. Households had no incentive to save and massively invested in the housing market that was highly inflated. Amongst other reasons, it was the excess in cash that created the asset bubble in the American housing market, which resulted in high unemployment rates (Ferguson and Schularick, 2011).
Summary of Chapters
1. Introduction: The introduction establishes the concept of Chimerica as a symbiotic relationship built on mutual economic advantages and outlines the paper's intention to analyze the imbalances brought to light by the financial crisis.
2. The Sino-American symbiosis: This chapter details the historical economic ties between the two nations, explaining how China's integration into the global economy and its massive accumulation of US treasuries fueled American consumption and global imbalances.
3. Drawbacks of Chimerica and the role of the financial crisis: This section explores the inherent vulnerabilities and dependencies of the relationship, arguing that the financial crisis served as a critical turning point that exposed the flaws of the existing model.
4. Revaluation of the Renminbi: The chapter examines the debate surrounding the undervaluation of the Renminbi and analyzes China's 2015 currency devaluation as both a market-based reform attempt and a potential tool for export stimulation.
5. Future perspectives of Chimerica: This chapter assesses the long-term evolution of the bilateral relationship, concluding that while economic decoupling is difficult in the short term, the strategic importance of the relationship is shifting.
6. Conclusion: The conclusion synthesizes the findings, noting that while the Chimerica model is increasingly scrutinized, both nations remain globally dominant and are unlikely to abandon their intertwined economic status immediately.
Keywords
Chimerica, Sino-American relations, Renminbi, US Dollar, Financial Crisis, Current Account Deficit, Exchange Rate Mechanism, Currency Devaluation, Global Economy, Trade Imbalances, Monetary Policy, Export growth, Economic Symbiosis, GDP, Capital Controls.
Frequently Asked Questions
What is the fundamental focus of this paper?
The paper explores the economic interdependence between China and the United States, a relationship famously coined as "Chimerica," and how this relationship has evolved from prosperity to post-crisis tension.
What are the central themes of the research?
The primary themes include currency manipulation, trade imbalances, the impact of the global financial crisis, and the shifting geopolitical influence of the two nations.
What is the primary objective of this study?
The objective is to evaluate whether the Chimerica relationship is sustainable in the long term, particularly in light of recent currency reforms and economic challenges faced by both countries.
Which scientific methodology is applied?
The work utilizes a liberal internationalist perspective to analyze secondary literature, economic data, and official financial reports to assess the stability and future trajectory of the bilateral relationship.
What does the main body of the work cover?
It covers the historical mechanics of the symbiosis, the drawbacks revealed by the mortgage crisis, the complexities of Renminbi valuation, and the projections for future global hegemony.
Which keywords best characterize this work?
Key terms include Chimerica, currency devaluation, trade imbalances, and Sino-American economic integration.
How did the financial crisis change the perception of the Chimerica relationship?
The crisis shifted the perception from a mutually beneficial symbiosis to a model defined by structural imbalances, leading to mutual accusations of monetary manipulation and economic profligacy.
What is the significance of the Renminbi devaluation in 2015?
The 2015 devaluation is presented as a complex move that arguably signaled China's attempt to transition to a more market-driven economy while simultaneously trying to mitigate export declines.
- Arbeit zitieren
- Anonym (Autor:in), 2016, Chimerica. The relationship between China and America, München, GRIN Verlag, https://www.grin.com/document/358858
