U.S. Tax Fight: The View From Asia
RACHEL MARTIN, HOST:
This week and last, WEEKEND EDITION has been finding out how people in other countries around the world see our fiscal cliff conundrum. Since all our economies are linked - and liable to follow one another upward or downward - we've heard some interesting views from Europe, Latin America and the Middle East. Today, we're off to China. Joining me from Hong Kong with the view from there is the Financial Times Asia News editor, Demetri Sevastopulo. Demetri, thanks so much for talking with us.
DEMETRI SEVASTOPULO: You're welcome, Rachel.
MARTIN: Wondering, first of all, Demetri, is there a word in Chinese for fiscal cliff? Has China absorbed this concept enough to have developed a parallel term?
SEVASTOPULO: Basically, China has just literally translated the word. So, in Chinese you say (foreign language spoken), which means fiscal cliff - exactly the same.
MARTIN: China is governed with what's known as state capitalism. Their government has very tight, even stifling control on policy. Wondering how people there perceive the political discord on Capitol Hill, the vigorous debate between the parties on this issue.
SEVASTOPULO: Well, I think in some ways the Chinese Communist Party and the American political system are probably more similar than people realize. While it's true that the Chinese Communist Party has a kind of grip on power that Democrats and Republicans would dream of having. And publicly, there's a face of unity that you're not going to see in the U.S. and in Washington. But behind the scenes, there are as many factions and battles within the Chinese Communist Party as there are in Capitol Hill and Washington, and you don't get the same kind of leaks to the media that you get in Washington.
MARTIN: It's not often you hear such stark parallels being drawn between the Communist Party and the democratic system in the U.S.
SEVASTOPULO: Yeah, I'm not sure how well that would go down on Capitol Hill. But, I mean, the truth is the Communist Party, for all of its flaws, internally, it is people and people always debate and fight with each other, and I think that's a fundamental similarity.
MARTIN: China is watching this situation in the U.S., as are many countries, in order to figure out how it would affect their own economy. Let's play out both scenarios. If the U.S. is unable to meet the budget deadline, how does that impact China?
SEVASTOPULO: Well, the first thing to think about is about a fifth of Chinese exports go to the U.S. So, if there's a dramatic decline in the American economy, Americans are going to buy less products, less iPads, less phones, lots of things that are made in China or the components are assembled in China. That's the first thing. The second thing is China has about three trillion or more than three trillion U.S. dollars in foreign reserves. The experts think that 50 to 60 percent of those reserves are kept in U.S. Treasury bonds and other U.S. dollar denominated assets. If the value of the dollar declines, the return that China earns on those reserves declines as well. So, China's very concerned about the strength of the dollar.
MARTIN: OK. Let's say the U.S. government is able to avoid the fiscal cliff. They come up with a deal. How that affect what's happening in China?
SEVASTOPULO: Well, I mean, one economist I spoke to this morning put it nicely. He said that if there's a full fiscal cliff and the U.S. falls over, Asia will jump as well. He said if there's a partial fiscal cliff, there's some kind of a, you know, an intermediate resolution, that Asia will kind of trundle on as it is at the moment. So, doing well but not as well as it could. And if the cliff's avoided, Asia will soar. I mean, ultimately, it depends on the strength of the U.S. economy. The Chinese economy and the U.S. economy, they're heavily interlinked. And if the U.S. economy suffers, you know, gets a cold, well then it's going to impact countries in Asia as well, from China to everywhere else.
MARTIN: Demetri Sevastopulo is the Financial Times Asia news editor. He talked with us from Hong Kong. Demetri, thanks so much for speaking with us.
SEVASTOPULO: Thank you, Rachel. My pleasure.
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