There is a good discussion on European Tribune that more or less summarizes the overall picture regarding China-U.S. relationship. The post discusses how would markets in China react in the event of U.S. recession (which is by recent WSJ survey is 85%+ likely to happen in the next 6 months). It basically points out that China’s current undervalued currency (and associated GDP) will serve as a leverage in allowing the markets to flow. Instead of dropping (which is likely to happen momentarily), its global evaluation price (not actual) is likely to drop to the current levels.

The thesis of the argument is that the Chinese economy can weather an American recession without going into a recession itself.

This conclusion is based on three, inter-related points:

* the relative importance of the US export market for continued Chinese growth;
* the ongoing decline of the US dollar against the Euro; and
* the ability of the US economy to recapture domestic and overseas markets for manufactured goods in the face of an increase in the Yuan/Renminbi exchange rate.

… where the positions that thesis rests upon is:

* not as important as we in the US like to think;
* its going to keep on going down, and that is likely to accelerate in the event of recession; and
* an extremely limited ability to recapture market share in the event of even a substantial rise in the Yuan/Renminbi exchange rate.

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