China should marshal its reserves to do good
Any day now, China’s foreign exchange reserves will reach the $1,000bn mark. That is one-fifth of the world’s re-serves, an amount greater than Japan’s enormous holdings and more than the reserves of Germany, France, Italy and Canada combined. China’s cushion of cash and investments would finance more than a year’s worth of the country’s imports, exceeding the margin of safety that any great trading nation needs, while still providing insurance for other emergencies. Beijing’s reserves have been growing in recent years by about $200bn a year; at that rate China will be nearing the $2,000bn milestone by the end of this decade.
This cornucopia is not an unalloyed blessing. It will complicate the country’s ability to contain inflation. If the greenback continues to depreciate, the value of China’s vast dollar holdings would decline. As reserves build, charges of predatory mercantilism from Europe and the US could reach a feverish pitch, leading to serious trade wars.
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So what can Beijing do? Deng Xiaoping often described the Middle Kingdom’s economy as “socialism with Chinese characteristics”. How about China mounting something with the generous spirit and bold conception of the Marshall Plan, albeit with Chinese features?
Suppose Beijing set aside $100bn of its current reserves
