Abstract

The bilateral economic relationship between China and the United States, who are the most systemically important countries in the global economic system, needs to be analyzed in a broader global and historical context. The Sino -U. S. trade interdependence relies on the global value chain and the Sino-U. S. financial interdependence unfolds as Chinese yuan mainly pegged to U. S. dollar. So, under the background of calling for a reconstruction of global economic orderafter global financial crisis, China needs to clarify whether the interdependent mode between China and the United States is sustainable or not. More importantly, as in the past decades, the rapid development of Sino-U. S. economic interdependence has shaped the world economic landscape, the competition and cooperation in this bilateral economic relationship in the future will continue to influence the evolution of the global economy. Therefore, in the post-crisis era, especially when China has replaced Japan as the second largest economy in the world, will the economic cooperation between China and the United States continue? Dependency produces power dominant relations, and then how will China establish and exert its influence in this economic interdependence? These questions constitute the logic starting point of this book.

In the framework of DSGE model, economic interdependence is mainly determined by the economic structure of the individual country. The change of the counterparty's economic policy will weaken the traditional macroeconomic policy's influence on domestic economic variables, so changes of one country's economic policy would be a non-ignorable disturbance to another country. The large“marginal effect of foreign income to net export”of China makes China's export highly depend on the final goods consumption market in the United States; Meanwhile, The small“marginal impact of interest rates on the foreign bond holdings”makes the fiscal policy and the regulation effectiveness of monetary policy of China to be significantly affected by currency market environment changes of the United States. The trade and capital circulation pattern between those two countries determines the sensitivity and vulnerability of China to be significantly higher than that of the United States, which is also the outstanding performance of the asymmetry of the interdependence.

In the field of trade, the two countries are viewing each other as the most important export target and import source. The imbalance of the Sino-U. S. bilateral trade manifests as their different positions of the global value chain, with China being the terminal of processing industry chain in the East Asian production network. In the financial sector, the specific form of the interdependence exists in the bilateral capital circulation. The investment from China to the United States comes mainly from official foreign exchange reserves, while the investment from the United States to China mainly comes from the multinational companies. The difference is closely related to the different patterns of economic growth and the varying rules of market operation of those two countries. More importantly, there is internal connection between financial and trade interdependence. Lagging development of the domestic financial market in China and excessive reliance on the role of net exports to economy growth has made China oversensitive to external shocks from the outside world.

Behind the Sino-U. S. economic interdependence, “financial balance of terror”and the“debtor logic”, are fundamental concepts to analyze the economic vulnerability of China. The“financial balance of terror”reveals that China's investment behaviors in the U. S. financial markets are intended to ensure the value of own national U. S. dollar assets and the implementation of export strategies, which also put the China's monetary authorities in a dilemmaon policy choices. As long as China being the“periphery”or“nation who give priority to trade”in the international monetary system, it is difficult to bypass the“Dollar Trap”and“Capital Doubtful Recycling”. The deeper that China getstrapped into U. S. dollar system, the more China will be affected by the“path dependence”effect. In Sino-U. S. economic interdependence, the vulnerability of China is that China cannot get rid of the dependence on the U. S. market. In a sense, China relies too much on the standard of U. S. dollar is the root cause of this vulnerability.

Overall, dependence of China on the United State goods and financial marketis far more than that of the United States on China towards commodity and finance. Monetary and financial hegemony supported by U. S. dollar standard system is the core of the fabric of American hegemony. Therefore, acknowledging and supporting the U. S. dollar in international monetary system is the inevitable choice of China to integrate into the global free trade system. The asymmetrical economic interdependence between those two countries affects the status of power division of China and United States. If“power”is the process and result of event control, the United States only allows others to participate in the process of international affairs, but always keeps itself high degree control over the implementation results. Under the pattern of economic interdependence, the United States will be able to continue to seek interests from the unequal division. However, compared to curbing the development of China's economy, the United States tries to maintain this asymmetry from the angle of the influence. Among the new competition and wrangling points between those two countries, network security problems and rebalance issues in the Asia-pacific region have become increasingly prominent.

Then, how will the two countries strengthen bilateral economic and financial cooperation, and improve the economic interdependence, especially from“negative dependence”to“positive dependence”？Construction of new power relationship between China and the United States can ensure the long-term development of the relationship between those two countries. Between those two countries, there is obvious complementarity and symbiosis. The new type of power relationship has certain strategic competition, and can realize a relatively stable cooperation in a certain range. In the process of this competition and cooperation, the strategic and economic dialogue mechanism will play a key role in the substantial progress of Sino-U. S. Bilateral Investment Treaty negotiations.

The innovation of this study is mainly reflected in: first, compared with the existing literature research, this study highlights the use of DSGE model in the study of Sino-U. S. economic interdependence; and further explore from the perspective of asymmetry of the power structure between China and the United States. Second, this study has expanded the view“China and the United States must make the transition from negative dependence to positive”, and on this basis the dissertation realizes an exploration for the transition of dynamic mechanism.