scary reassuring

It’s well known that the US / Western spending splurge that proceeded the current financial meltdown was largely financed by China, along with other Asian and developing economies.  By investing in US debt, the Chinese financed a period of low interest rates and high credit, while at the same time plunking their massive trade surplus and foreign exchange reserves into what seemed to be a safe asset.  Now the fragile edifice has collapsed, but the Chinese are still holding more than two trillion dollars of, well, dollars.  Which means the US is indebted to China (for a humorous take on this, see this link which I discussed in my last post).

All of this spending and borrowing has generated the first signs that the future monetary order might be dominated by the Chinese instead of the Americans.  Chinese officials have on several occasions (including at the recent G8 meeting in Italy) said that they are interested in a future monetary system where the dollar plays a less dominant role, and have agreed with Brazil to denominate trade between the two nations in their own respective national currencies.  All of this has caused people that study the things that I study to wonder if the transition has already started towards a future in which China plays an equal, if not larger, role in the international political economy of money than they do now.

Given all of this context, and the fact that M. and I are actively looking to buy a house in London, this morning’s news that the Bank of China (the world’s third largest bank) is planning on offering mortgages to UK home buyers really caught my attention. Just think, I could be personally indebted to China, rather than just generically indebted to China through my government’s (and my adopted home government’s) borrowing habits!

In fact, the article mentioned that Bank of China mortgages would have two advantages vis-a-vis those offered by more traditional UK outfits: they would be more conservative, and therefore less risky (for the bank and for the borrower); and they would be cheaper.  Sounds like a great combination.

I was so taken with the idea of personally contributing to the up and coming dominance of Chinese finance (being the Sinophile that I am), that I suggested to M. that we check it out.   He agreed, and  I’ve requested an appointment with our local Bank of China – located where else but in London’s Chinatown! – to discuss mortgages.   If the Bank of China manages to woo us away from our current bank, HSBC  – otherwise known as the Hong Kong Shanghai Banking Corporation, established by the British colonisers in the 19th century to finance Chinese / European trade – it will be a transition from one monetary hegemon to another in more ways than one.  And whether banking with (and therefore on) the new hegemon is scary or reassuring, well… that sort of depends on your point of view.

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While bored on maternity leave, I once did a little experiment to see what percentage of my newborn son’s clothes, toys and paraphernalia were made in China.  The short answer was all of them (the longer answer can be read here). It took the satirical US newspaper, The Onion, just a little longer to realise that almost everything is made in China these days, but they have turned their absurd humour to the trend.  The joke: they’ve sold The Onion to the Chinese.  A sample of the headlines: “Toddler chokes to death on Tawainese made toy;” “Grandfather disrepected in own home,” and my personal favourite “Star Athlete Signs Contract for Millions of Weak U.S. Dollars.” Very funny, and also very politically incorrect.