China/Russia Alliance

I've been hearing some worries about the new Russian/China alliance, and how it would proves to be a power balancing move against the US. First, lets look at a few thing about China and Russia. China is the second largest market in the world, and Russia is the second largest oil producer. China is a rapidly growing country with double digit GDP growth in 2007, and is projected to continues growing at around 10% each year. China is a net exporter and is quickly becoming an exporter capital worldwide, China have a huge trade surplus ($300 billion) with the US. China is the second largest holder of US treasury securities ($400 billion). Russia, although a shell of its former self, is a strong economy with a 1.7 trillion USD GDP, 6% GDP growth, net exporter, and stock piles of nukes. Combine, we have two of the world greatest super power that does not like the US very much. Certainly sound like something to worries about.

The true, though, is that thing isn't as bad as it sound. Economic growth has become significantly important for all developed economies, or up and coming developing economies, and this is why a Russia/China unity might not be as scary as say a decade ago.

For China, after the fall of the Soviet, Communism has taken a hard hit to its cridibility as a form of government; and China has only been able to legitamized its rules base upon economic prosperity. However, rapidly growth demand resources, resources that either is highly competitive worldwide and resources that China does not have, among with is oil. Russia, then, seem a perfect partner for a country that need to secures oil resources to maintain its growth. China have two choice in this situation; they could either fight with Russia over the resources as they did in the past, or they can partner up with Russia and gain access to a much larger among of resources. For Russia, a partnership with China mean a market as well as global support on their own agenda. China is the second largest market in the global economy, and it is rapidly growing to eventually become the largest market.

Russia, as an economy trying to recover from the failure of the Soviet rules, need a market to sell too, and who is better to do that with than China in a more or less unilateral bases? Secondly, Russia has large stockpile of nuke as well as the dealiest none nuclear bomb, but their army is a shadow of their former self. China is a rapidly growing military while investing heavily in its military each year on almost the same level as the US. Combined, these two will prove to be a match for US military hegemony.

To dispell fear, we must first look at a few things. One of the fear that people have is due to China holding of USD. It is true that China holds a lot of US’s securities, but would China threaten the US if it was to sell it all off? It might, but not likely. The power that China hold over the US in this situation is a monetary one that could aversely affect the US economy. If the US was fighting back inflation, China would mess up any monetary policies to cut inflation by selling off their holding. Sound scary does it not? Not really if one is to take a step back and look at the situation from a global prospective, not a unilateral one.

Scenario one: US is fighting back inflation and China want to weaken the US long run well being by forcing in inflation by selling their holding. If the world is facing a growing US economy, the only result from a Chinese sell out would be other countries buying USD, which would not affect the US overall. On the contrary, it would push Chinese inflation up because they are buying Chinese Yuan when they are selling off their holding of US securities. Secondly, there is much interest at stake in the US economy, and its fall would spell disaster for the world around; hence, many countries will not sit by to watch the US economy fall if it could do anything to prevent it. Just look back at the dollar crashing in later 2006, and how fast it recovered the next day. Countries from around the world quickly bought USD to help bring the USD back up.

Scenario two: US is facing a weakening economy, like what we are face with right now. In this case, China really can’t do much. If China sell off their holding, then it would only help the US recover or help to weaken a blow from recession. Although, taking other things into consideration, a China sell out could could turn out to be bad for the US as this could lead to a flight of USD if other also see the huge swing in sell and decide that they too would not want to hold USD. Or it could lead to a slow down of foreign investment, which as I state in the post below, that could really hurt the US as we are living way beyond our mean. However, the US economy have to be doing extremely bad and to have lost the trust of people all over the world for this to happen.

Ultimately, the Russia/China alliance is one of convenient. China need to support its oil need, and Russia is the perfect provider. Russia on the other hand get access to the Chinese market, something long sought after by many.

There are other major political implications, such as the two security council veto which mean US unilateralism have some check. Russia military and China rapidly growing military combines could also prove to be a balance to US unilateral military power in past decade. However, this does not mean we’re returning back to the time of Cold War. Economic growth is to important at this time as symbolize by the important of the Olympic from China’s prospective. We must also remember that China and Russia are no friend either, and it is a little egocentrically to think that they join merely to counter US interest. All this mean is that US hegemony might not hold true for long, but it is not going to lead to war. As long as the US does not threaten Chinese or Russian securities or interests, or vise versa, then there really is no problem. With the current globalize world, advancement of technologies, and the advancement of the global monetary system over the years; there is just to much at stake to growth for China/Russia to fight the US.