ALEX CHADWICK, host:
Japanese markets, Europe, Wall Street - there's one more big player heard from this week, and that is China. This comes as U.S. officials have been pressuring China to readjust its currency upward. The U.S. says China is unfair.
MADELEINE BRAND, host:
Here's the nut of it. China keeps the value of the Yuan lower than it actually is and that keeps Chinese products cheap. That's a big reason for the huge trade imbalance between the U.S. and China.
CHADWICK: Now, two officials in China are hinting that it may strike back by dumping some of the nearly $1 trillion in U.S. bonds that China holds.
Ted Fishman is the author of "China Incorporated: How the Rise of the Next Superpower Challenges America." Ted, welcome back to DAY TO DAY. And what would happen if China started selling its U.S. bonds?
Mr. TED FISHMAN (Author): If China starts selling U.S. bonds, it is in effect selling U.S. dollars and it's driving the dollar down, which is exactly what China doesn't want. But it also has a political element to it, which is it shows that China has the muscle to bully the world's financial markets.
I don't know if you remember, but James Carville once said he wished he could be reincarnated as the bond market because it's more powerful than governments. China right now feels that it has been reincarnated as the bond market. And it's using its new incarnation to strike fear into the political process in the U.S.
CHADWICK: But wouldn't these be bad for China in some way?
Mr. FISHMAN: It would be quite that for China. You know, China has two things going. Number one, it has a giant investment portfolio. You could think of it as a huge hedge fund or a huge mutual fund, and 900 billion of that is invested in American bonds. And so if the value of the dollar goes down, whatever they have left in that portfolio goes down in value in relation to their own economy. That's a bad thing.
The other thing that it would do is it would boost interest rates up in America, which would mean that our consumers, who borrow like mad to buy things in stores that sell almost all Chinese goods, would be less willing consumers.
CHADWICK: Just a week ago, the U.S. treasury secretary, Henry Paulson, was in Beijing for a meeting with Chinese President Hu Jintao.
Mr. FISHMAN: Paulson goes there and he beats a shoe, and he beats a drum, and he plays good cop and bad cop to give the message to the American people that he is working very, very hard on currency issues with China, so that they hike the level of their currency. But behind the scenes he has to be telling them don't listen to what I say in public. It can't be good for any of us.
And then the Chinese, on the other hand, are saying in public to their people, look, we won't let the Americans bully us around. We'll do whatever we want. But behind the scenes they're saying we better not do anything. So we get this kind of double charade going on where everybody really is dependent on the status quo.
CHADWICK: Ted Fishman, author of "China Incorporated." Ted, thanks.
Mr. FISHMAN: My pleasure. Thank you. Transcript provided by NPR, Copyright NPR.
