There is intense speculation that China's economic rise will radically transform the world’s capital markets and financial system, but such predictions are unlikely to come true in the foreseeable future.
China's economic recovery is solidifying. Though risks—particularly in the real estate sector—are multiplying, they remain manageable, and an exit strategy is emerging.
Before China can move from being a great power to a superpower, it will have to overcome a number of economic, political, environmental, and regional challenges, from low per capita income and an aging and primarily rural population to the threat of ethnic secessionism.
While China's role in global trade is continuing to grow, the dollar, not the yuan or the euro, will remain the world’s leading reserve currency for the foreseeable future.
While the global recession has benefited China’s international standing, the rise of China should not be overestimated, as the country continues to face the challenges of economic rebalancing, nonperforming loans, and domestic instability.
As Asian countries seek to maintain trade advantage by manipulating their currencies, the United States and Europe, who have little room to devalue, may respond with protectionist measures that will hurt global trade.
Without greater global investment or a rise in Chinese domestic consumption, the increasing U.S. savings rate will have serious repercussions for both the Chinese and American economies and create aftershocks in dozens of other countries.
The overvalued U.S. dollar has been unable to adjust sufficiently against Asian currencies, creating a risk that the United States will revert to trade protectionism in its attempt to achieve a better trade balance.
Despite recent Chinese criticism of low U.S. interest rates, changing these rates in either direction would have adverse effects on China’s economy, underscoring the deep imbalances in the global financial system.
President Obama’s trip to Asia will signal renewed U.S. commitment to this vitally important region. Perhaps the most important stop will be in China, where Obama will seek to ease lingering strategic distrust and discuss key issues of trade, climate change, and security.