Sensitivity and Fragility of Economic Interdependence in Sino-U. S. Relations:An Analysis based on the “Balance of Financial Terror”
Author: Xiang Weixing and Wang GuannanSilver Editor Source: Contemporary Asia Pacific StudiesTime :2014-04-09 14:15:00
Abstract: This article argues that economic interdependence between the U. S. and China is expressed mainly through asymmetric bilateral capital circulation, and that China’s level of sensitivity and fragility within the relationship of economic interdependence is much higher than that of the United States. Through bilateral capital circulation between the U. S. and China caused by the global financial crisis, China’s reliance on America’s monetary policy and its financial markets has increased, and in particular the “balance of financial terror” between the two countries has strengthened. This article uses structural vector auto regression analysis to model the dynamic response triggered by such external shocks to conduct an empirical test of this argument. It is argued that the U.S. dollar standard and the export based development strategy that China has advanced since embarking on its policy of reform and opening are the root factors resulting in China having levels of sensitivity and fragility much higher than those of the United States. At present, China is not capable of overcoming the “financial balance of terror” between the two countries, and China must decrease its fragility within the context of Sino-U. S. economic interdependence by speeding the pace of structural reforms to its economy, shifting the direction of its development strategy and speeding the pace of its financial transition.
