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The Chinese economy is at a point where it also can defy the Mundell-Fleming thesis and free itself from dollar hegemony.
China has the power to make the yuan an alternative reserve currency in world trade by simply denominating all Chinese export in yuan. This sovereign action can be taken unilaterally at any time of China's choosing. All the State Council (the Chinese government's cabinet) has to do is to announce that as of, say, October 1, 2002, all Chinese exports must be paid for in yuan, making it illegal for Chinese exporters to accept payment in any other currencies. This will set off a frantic scramble by importers of Chinese goods around the world to buy yuan at the State Administration for Foreign Exchange (SAFE), making the yuan a preferred currency with ready market demand. Companies with yuan revenue no longer need to exchange yuan into dollars, as the yuan, backed by the value of Chinese exports, becomes universally accepted in trade. Members of the Organization of Petroleum Exporting Countries (OPEC), which import sizable amount of Chinese goods, would accept yuan for payment for their oil.
In 2000, the United States exported US$781.1 billion (12.3 percent of world exports - 11 percent year-to-year growth) and imported $1.2576 trillion (18.9 percent of world imports - 19 percent year-to-year growth). Germany exported $551.5 billion (8.7 percent of world exports - 1 percent year-to-year growth) and imported $502.8 billion (7.5 percent of world imports - 6 percent year-to-year growth). Japan exported $479.2 billion (7.5 percent of world exports - 14 percent year-to-year growth) and imported $379.5 billion (5.7 percent of world imports - 22 percent year-to-year growth). France exported $298.1 billion (4.7 percent of world exports - 1 percent year-to-year decline) and imported $305.4 billion (4.6 percent of world imports - 4 percent year-to-year growth). The United Kingdom exported $337 billion (5.1 percent of world export - 5 percent year-to-year growth) and imported $284.1 billion (4.5 percent of world imports - 6 percent year-to-year growth).
China exported $249.3 (3.9 percent of world exports - 28 percent year-to-year growth) and imported $225.1 billion (3.4 percent of world imports - 36 percent year-to-year growth). Hong Kong exported $214.2 billion (3.2 percent of world exports- 19 percent year-to-year growth) and imported $202.4 billion (3.2 percent of world imports - 16 percent year-to-year growth).
China (including Hong Kong) exported more than $463 billion (7.3 percent of world exports) in 2000 and imported about $428 billion, yielding a trade surplus of around $35 billion. If all Chinese exports are paid in yuan, China will have no need to hold foreign reserves, which currently stand at more than $200 billion. And if the Hong Kong dollar is pegged to the yuan instead of the dollar, Hong Kong's $100 billion foreign-exchange reserves can also be freed for domestic restructuring and development.
China's spectacular export growth has not reversed the shrinking of world trade volume since 1997. Its growth has come at the expense of the now wounded "tigers" of Southeast Asia. China is on the way to becoming a world economic giant but it has yet to assert its rightful financial power.
There is no stopping China from being a powerhouse in manufacturing. With the Asian economies trapped in protracted financial crisis from excessive foreign-currency debts and falling export revenue resulting from predatory currency devaluation, the International Monetary Fund, orchestrated by the US, has come to their "rescue" with a new agenda beyond the usual IMF austerity conditionalities to protect Group of Seven (G7) creditors. This new agenda aims to open Asian markets for US transnational corporations to acquire distressed Asian companies so that their newly acquired Asian subsidiaries can produce inside Asian national borders. The United States, through the IMF, aims to break down the traditionally closed financial systems all over Asia that mobilize high national savings to serve giant national industrial conglomerates, for massive investment in targeted export sectors. The IMF, controlled by the US, aims at dismantling traditional Asian financial systems and forcing Asians to replace them with a structurally alien global system, characterized by open markets in products and, crucially, in finance and financial services. The real target is of course China. For the US knows: as China goes, so goes the rest of Asia.
Trade flows under neoliberal globalization have put Asian countries in a position of unsustainable dependency on foreign loans and capital to finance export sectors that are at the mercy of saturated foreign markets while neglecting domestic development to foster productive forces and to support budding domestic consumer markets. In Asia, outside the small circled of well-heeled compradores, most people cannot afford the products that they produce in abundance for export or the high-cost imports. An average worker in Asia would have to work days making hundreds of pairs of shoes to earn enough to buy one McDonald's hamburger meal for his family while Asian compradores entertain their Western backers in luxurious five-star hotels with prime steaks imported from Omaha. Markets outside of Asia cannot grow quickly enough to satisfy the developmental needs of the populous Asian economies. Thus intra-region trade to promote domestic development within Asia needs to be the main focus of growth if Asia is ever to rise above the level of semi-colonial subsistence.
The Chinese economy will move quickly up the trade-value chain, in advanced electronics, telecommunications, and aerospace, which are inherently "dual use" technologies with military implications. Strategic phobia will push the United States to exert all its influence to keep the global market for "dual use" technologies closed to China. Thus "free trade" for the US is not the same as freedom to trade. Still, China will inevitably be a major global player in the knowledge industries because of its abundant supply of raw human potential. Even in the US, a high percentage of its scientists are of Chinese ethnicity. With an updated educational system, China will be the top producer of brain power within another decade. As China moves up the technology ladder, coupled with rising consumer demand in tandem with a growth economy, global trade flow will be affected, modifying the "race to the bottom" predatory competitive game of a decade of globalization among Asian exporters.
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