Great article in The Atlantic discussing what China has been up to with all that money we've been giving them, their financial leadership, and a pair of interesting dichotomies: China holds a lot of financial cards but are still newbies in the game of international economics; and despite raking in enormous sums, the Chinese people see only a little growth in their own finances and very little change in social development. From the closing:
Let’s take these fears about a rich, strong China to their logical extreme. The U.S. and Chinese governments are always disagreeing—about trade, foreign policy, the environment. Someday the disagreement could be severe. Taiwan, Tibet, North Korea, Iran—the possibilities are many, though Taiwan always heads the list. Perhaps a crackdown within China. Perhaps another accident, like the U.S. bombing of China’s embassy in Belgrade nine years ago, which everyone in China still believes was intentional and which no prudent American ever mentions here.
Whatever the provocation, China would consider its levers and weapons and find one stronger than all the rest—one no other country in the world can wield. Without China’s billion dollars a day, the United States could not keep its economy stable or spare the dollar from collapse.

Would the Chinese use that weapon? The reasonable answer is no, because they would wound themselves grievously, too. Their years of national savings are held in the same dollars that would be ruined; in a panic, they’d get only a small share out before the value fell. Besides, their factories depend on customers with dollars to spend.

But that “reassuring” answer is actually frightening. Lawrence Summers calls today’s arrangement “the balance of financial terror,” and says that it is flawed in the same way that the “mutually assured destruction” of the Cold War era was. That doctrine held that neither the United States nor the Soviet Union would dare use its nuclear weapons against the other, since it would be destroyed in return. With allowances for hyperbole, something similar applies to the dollar standoff. China can’t afford to stop feeding dollars to Americans, because China’s own dollar holdings would be devastated if it did. As long as that logic holds, the system works. As soon as it doesn’t, we have a big problem. Long but worth checking out.

Mutually assured bankruptcy?

I would buy RMB right now. If you can open a Hong Kong bank account at HSBC or Standard Chartered, get an RMB account and withdraw money in USD if you need to. The beauty is that in Hong Kong it is very easy to trade RMB (given its free market stance), while China makes it easy to bring money into the country but difficult to bring RMB out. (By the way, Hong Kong banks are one of the few places where you can open a bank account in RMB and withdraw in USD). The US is pushing for an additional rise in RMB value, and the Chinese central bank has agreed to it by Summer 2008 (coincidentally the same time as the Chinese olympics). Given that yuan appreciation is expected to go at annualized rate of 17%, any investment in RMB rather than in the weaker USD is a sure-win investment, given that we're giving all our money to China...

I never understood the why the US has always been bullying the Chinese. You simply don't go up to your banker and harass them, especially if you are borrowing money from them. In the same sense, the US is borrowing money from China, and quite often creates a hostile feeling among the two parties, but on the flip side of the coin, the US and China have a unique balance of power.

Sometimes I feel that China is becoming more capitalist than the US.

There are people who hate the People's Republic of China because it is an oppressive, evil, Communist police state. It certainly used to be. It is no longer Communist. It is no longer even socialist, for the most part. In fact, as I have pointed out, the United States is moving ever closer toward socialism while China is moving ever closer toward pure capitalism. They have no universal health care, no HMOs, little taxation, few social programs; they have dismantled all of the State-run corporations. People are largely allowed to seek their own path to wealth, to seek their own way in life. If anything, corporatism and close party ties are examples of this happening (just look at China Mobile).

This is not to excuse China's government for their crimes, or the people for not overthrowing their government yet. One of the biggest faults of the Chinese, in my opinion, is that they are so focused on becoming wealthy that they are mollified by a corrupt government that buys them off with opportunities to get rich. That's how they got into Communism in the first place, you know, by believing that Communism could make your family rich, rather than any altruistic notion of ensuring that no one starved. On the other hand, however, in reaction to the demands of the people, China is allowing free markets and allowing the market itself to determine how business and life are conducted. As a result, they are experiencing unprecedented growth and enrichment. It's amazing to see the differences there just over the last 6 years.

I'm originally from Taiwan (Republic of China). And I'm in support of Kuomintang... Just so everyone knows where my opinion is coming from.

Who says we are bullying China? This is the same thing I always tell people...China and America will always have a love/hate relationship. We depend on each other and will for the rest of my life time.

I never understood the why the US has always been bullying the Chinese.As the article notes, China is artificially manipulating its currency to maintain its current economic structure. This doesn't sit well with other parties.
There are people who hate the People's Republic of China because it is an oppressive, evil, Communist police state. It certainly used to be. It is no longer Communist. It is no longer even socialist, for the most part.A major theme of the article is how the state run economy keeps the fruits of China's economic plan reinvested instead of in the hands of the workers, so while China isn't purely communist, it does retain significant vestiges of that kind of system.People are largely allowed to seek their own path to wealth, to seek their own way in life.Some people, anyway. Your average factory worker or rural dweller isn't exactly awash in opportunity.

The next few years will be very interesting to watch in an "are those trains going to collide" sort of way.

The class system is becoming much more pronounced in China, even though it is a slap in the face of the old Communist way of thinking. Opportunity exists for great advancement and wealth, if you are in the right family, or level of the hierarchy.

China has not developed such a large army just for the potential of war, but to also be able to put down the inevitable rebellion of workers who have reached the end of their rope; living on meager wages and a lack of basic staples, often being away from family for a year or more at a time, having to scrimp on daily necessities to save enough for the once a year holiday trip home to wives and children or other family, etc. It was these kind of conditions that helped propel the last major revolution in China, and the Chinese are good at learning from their past. They have learned how to defend against it rather than how to alleviate the conditions that lead to the workers being willing to rebel.

The class system is becoming much more pronounced in China, even though it is a slap in the face of the old Communist way of thinking. Opportunity exists for great advancement and wealth, if you are in the right family, or level of the hierarchy.

China has not developed such a large army just for the potential of war, but to also be able to put down the inevitable rebellion of workers who have reached the end of their rope; living on meager wages and a lack of basic staples, often being away from family for a year or more at a time, having to scrimp on daily necessities to save enough for the once a year holiday trip home to wives and children or other family, etc. It was these kind of conditions that helped propel the last major revolution in China, and the Chinese are good at learning from their past. They have learned how to defend against it rather than how to alleviate the conditions that lead to the workers being willing to rebel.It is ironic, because the whole reason the communists were brought to power was to remove a class structure in China. Even if Republic of China (now relegated to Taiwan) won the civil war, the existing class structure before the War and Resistance of Japanese Aggression (that's what we call it in Taiwan) would still exist.

If you read about Chinese history from the 1800s up to the 1980s, you will find the entire period to be completely depressing. I remember back in Taichung Middle School in Taiwan when we studied about Nanjing Massacre I was just taken aback to read about the horrors that happened. The Qing dynasty was inept. The British were the original drug lords, and was able to take and invade Hong Kong through weakening the civil population through opium. Let's not forget about the "Open Door" policy and the "Foreign Devil" presence in Shanghai, China.

On top of that, most of the land were owned by rich, "old-money" Chinese families. Workers would remain workers; even if the Nationalist army did win, there would be no immediate changes for the working class. When promised that everything under heaven would belong to all "天下為公 ," the Communist army became more appealing to the working citizen. Of course, people were conscripted to join the Communist army whether they liked it or not (the same applies to Kuomintang/Nationalists).

Despite the fact that China is largely communist (perhaps better at the game of capitalism than the US), China has developed for the first time in its history a quasi-middle class. Not a middle class in the same sense as a US-middle class, but with the spending power that has let many in the cities live a comfortable life.

I do have to give credit to the Communist government, though. For the first time in Chinese history, everyone has access to a bowl of rice. However, all of that is rapidly disappearing. There is a problem where China may return to its old system where you're either rich or poor.