Summary
Over the past several years, China has enjoyed one of the world’s fastest growing economies and has been a major contributor to world economic growth. However, the current global financial crisis threatens to slow China’s economy. Although its exposure to troubled U.S. sub-prime mortgage securities is believed to be relatively limited, China’s export industries and sectors dependent on foreign investment could be hard hit if the economies of its major trading partners, including the United States, experience a sharp slowdown. This possibility concerns the Chinese government, which views rapid economic growth as critical to maintaining social stability. China is a major economic power and holds huge amounts of foreign exchange reserves, and thus it could play a major role in responding to the current crisis. For example, in an effort to help stabilize the U.S. economy, China might boost its holdings of U.S. Treasury securities, which would help fund the Federal Government’s purchases of troubled U.S. assets. However, this could raise a number of issues and concerns for U.S. policymakers.
