ROBERT SIEGEL, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
MICHELE NORRIS, host:
And I'm Michele Norris.
Finance ministers from the G-20 countries gathered in the south of England today. They're trying to come up with a plan to put the world economy back on track. At issue isn't so much what to do, but what to do first, more stimulus spending, or a new regulatory system for the global economy. Leading the call for more spending are the U.S. and China, usually rivals on the world stage.
But as NPR's Tom Gjelten reports, the global crisis has reminded leaders in both countries that their economic fortunes are closely intertwined.
TOM GJELTEN: The ties between the United States and China arguably make theirs the single most important economic relationship in the world, at least in terms of their buying power. Forget the G-20, it's the G-2 that counts, says Fred Bergston, director of the Peterson Institute for International Economics.
Mr. FRED BERGSTON (Director, Peterson Institute for International Economics): The key point is that the United States and China are now the two biggest economies in the world. So it really does fall on the U.S. and China to lead the global recovery.
GJELTEN: But this is a relationship with issues. Over the last few years, China's exports have vastly exceeded its imports, leaving it with a huge surplus. Much of that money has gone to buy U.S. government debt, about $1.3 trillion worth. It's partly those Chinese dollars that made U.S. mortgages so cheap and lead to the housing bubble that's now collapsed. It's also that Chinese money that's financing our current U.S. debt. Brad Setser of the Council on Foreign Relations says this financial connection makes both countries uneasy.
Mr. BRAD SETSER (Council on Foreign Relations): For the U.S. I think it's uncomfortable to rely so heavily on one country and in particular, one country's government for credit. And I think from China's point of view it's got to be somewhat uncomfortable to have such a large share of your national savings went to another country, and to have such a large exposure to the dollar.
GJELTEN: In fact, Chinese Premier Wen Jiabao just today said he's, quote, "a little bit worried," unquote, about the safety of his country's big investment in U.S. debt. But neither country is in a position right now to do much about this interdependence. China invests in U.S. dollars for lack of a safer alternative. It could spend more at home, boosting imports and cutting back exports, but Eshwar Prasad of the Brookings Institution says that could lead to more unemployment in China.
Mr. ESHWAR PRASAD (Brookings Institution): The problem is they need the export sector in order to generate jobs. The job growth doesn't come from the state enterprise sector which is largely focused on domestic manufacturing still. So they need the exports.
GJELTEN: The U.S. government, meanwhile, right now depends on China to finance its huge and growing debt, so Brad Setser says China and the United States have to move carefully to change their economic relationship.
Mr. SETSER: Any abrupt adjustment at a time when the global economy is already undergoing so many abrupt adjustments would make a difficult situation worse. But I think if it happens gradually, both countries should have an interest.
GJELTEN: In the face of the global financial crisis, both governments are taking care not to jeopardize their ties. Treasury Secretary Timothy Geithner has not repeated earlier comments about China manipulating its currency to keep its exports cheap. And here's Chinese Foreign Minister Yang Jiechi speaking in Washington this week.
Mr. YANG JIECHI (Chinese Foreign Minister): The primary common interest of China and the United States is to weather this storm together, like passengers in the same boat, and support each other to get through the tough times, and emerge from the crisis victorious.
GJELTEN: The U.S. and China have put more money into economic recovery programs than anybody else. Fred Bergston of the Peterson Institute sees a deepening partnership.
Mr. BERGSTON: When we get to the G-20 summit in London in a couple weeks, I hope that President Obama and President Hu Jintao will walk into the room arm in arm, challenge the Europeans and others to do what they've done, in which case we'd have a lot better prospect for a global recovery.
GJELTEN: And maybe then, China and the United States can start working on a more balanced economic relationship. Tom Gjelten, NPR News, Washington.
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