China’s surging economic clout was amply demonstrated when the official state news agency Xinhua released a scathing statement against Washington following Standard & Poor’s downgrading of the US credit rating.
“The US government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” stated Xinhua news agency. “China, the largest creditor of the world’s sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets. International supervision over the issue of US dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,” added Xinhua.
China’s rise is particularly striking when viewed in the context of the humiliations the country suffered during the Opium Wars which led to the dismemberment of the Canton Trade Laws, the signing of the Unequal Treaties and the country’s financial ruin.
Prior to the arrival of opium in China through the East India Company, in the 1790s China had built up huge reserves of Western European silver through the export of its tea, porcelain and silks for which there was an insatiable demand in Britain and Western Europe. China was probably the richest country in the world in the 18th century with its booming exports. Since China imported little from the West, the dangerous trade deficit with China was causing much alarm.
However, the introduction of opium into China had disastrous consequences, leaving the country ravaged and bringing its prosperity to an end. Harvested in India, opium was first imported into China through Canton which the British recognised as a lucrative commodity to address the trade imbalance with China.
By the end of the 18th century, the East India Company had secured a monopoly on the export of opium from India which gave the British complete control over supply to China. But by 1833, the East India Company’s monopoly on trade expired and merchants from around the world converged on China to supply opium.
China’s vast reserves of silver began to deplete rapidly as millions became addicted to the drug. During the first decade of the 19th century, China had enjoyed a trade surplus of 26 million Spanish dollars but between 1828 and 1836, this surplus had become a deficit of 38 million. After the confiscation of opium chests by Chinese authorities and a halt in trade, Britain declared war on China and in 1842 China was forced to sign the Treaty of Nanking or the Unequal Treaty. Once again in 1858, British, French, Russian and American troops overpowered Chinese forces at Tientsin which led to the signing of yet another Unequal Treaty. The treaty legalised the opium trade in China and allowed Britain, France, Russia and the United States to set up diplomatic residences in Beijing.
After generations of unparalleled economic leadership, most notably by the great statesman Deng Xiaoping, China was set on the path of progress. Most recently, there has been much discussion about whether the yuan should replace the dollar as the global reserve currency. In a recent article published in the Financial Times, a former member of the monetary policy committee of the Chinese central bank asserted, “The People’s Bank of China must stop buying US dollars and allow the renminbi exchange rate to be decided by market forces as soon as possible. China should have done so a long time ago. There should be no more hesitating and dithering. To float the renminbi is not costless. However, its benefits for the Chinese economy will vastly offset those costs, while being favourable to the global economy as well.”