437 Ángel Rodríguez García-Brazales, Jorge Turmo Arnal y Óscar Vara Crespo The effect of global economic imbalances on the military strategy of the United States and China. of public and private debt. We can therefore expect that the adjustment predicted by the intertemporal approach to the current account with regard to deficits will occur within a relatively short period of time. The second element is linked to the commercial and financial relationship between China and the United States. The current account surpluses of the former are in one way or another controlled by the government of Beijing, which directs investment flows. A favourite form of investment in this context is U.S. treasury securities. For example, in mid-2012 there were almost 1.2 billion dollars in bonds in the hands of China and it was the second largest holder of U.S. debt after the Federal Reserve. Because bonds are used to finance the U.S. budget deficit, they are the basis of one of the country’s main weaknesses. Despite agreements between President Obama and the Congress and Senate to reduce the deficit, the figures are still very high, so the Department of the Treasury has to continue placing large amounts of bonds in international markets. It is obvious that the Chinese government invests in bonds because they represent a good trade-off between yield and risk, but it is also true that this could jeopardise federal funding and spending, including military spending, which, as we shall see, accounts for a substantial part of the budget. This is the second risk of the current account deficit for macroeconomic variables and, hence, military potential in the medium and long term. It can therefore be said that the U.S. current account deficit and China’s current account surplus - which are closely linked – are a cause of instability in the world economic and geostrategic arena. Whether this instability remains latent or manifests itself will depend on a number of factors that we will now analyse. 4. The future of the Chinese economy and its effect on military spending in China and the United States and the balance of power. 4.1 Change of the growth model. There is general consensus among experts that China needs to change its economic model and find a solution that addresses the country’s many imbalances, such as investment as a percentage of aggregate demand, which is too high; low private consumption; a services sector that is still in its infancy and financial repression, etc. Since China’s economy took off in the mid-1980s, economic growth has been based on the mass transfer of workers from rural to urban industries, low wages and, consequently, production costs, and an accumulation of factors concerning capital and labour that would be defined in economics as “extensive growth”. Increased production at low costs and prices has led to a massive increase in exports, which in turn has given rise to a current account surplus, to the extent that entire regions now
REVISTA IEEE 2
To see the actual publication please follow the link above