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Why the Chinese Worry About Our Health-Care System

Americans worry that their policymakers have left them vulnerable by allowing the Chinese to buy up so much of our currency. The Chinese, however, worry that their policymakers have left them vulnerable by buying up so much of our currency. That means both of us are worried about the same thing. Americans worry about our deficits because it means we need the Chinese to keep buying our bonds. The Chinese worry about our deficits because they signal that we're more likely to default on our debt. And when you're worried about deficits, you're really worried about health-care spending, as Peter Orszag found out when the Chinese delegation arrived in July.

To his surprise, when Orszag arrived at the site of the annual U.S.-China Strategic and Economic Dialogue (S&ED), the Chinese didn't dwell on the Wall Street meltdown or the global recession. The bureaucrats at his table mostly wanted to know about health care reform, which Orszag has helped shepherd. "They were intrigued by the most recent legislative developments," Orszag says. "It was like, 'You're fresh from the field, what can you tell us?' "

As it happens, health care is much on the minds of the Chinese these days. Over the last few years, as China has become the world's largest purchaser of Treasury bonds, the government has grown increasingly sophisticated in its understanding of U.S. budget deficits. The issue has become all the more pressing in recent months, as the financial crisis and recession pushed the deficit to record levels. With nearly half of their $2 trillion in foreign currency reserves invested in U.S. bonds alone, the Chinese are understandably concerned about our creditworthiness. And this concern has brought them ineluctably to the issue of health care. "At some point, if you refuse to contain health care costs, you'll go bankrupt," says Andy Xie, a prominent Shanghai-based economist, formerly of Morgan Stanley. "It's widely known among [Chinese] policymakers." Xie himself wrote a much-read piece on the subject in 2007 for Caijing magazine -- kind of the Chinese version of Fortune.

Noam Scheiber has more.

By Ezra Klein  |  September 15, 2009; 9:18 AM ET
Categories:  China  
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Comments

The Chinese are also worried about our deficits in that if we stop running deficits, they'll be unable to buy our debt, and hence unable to keep their currency artificially low.

Posted by: clifton_ealy | September 15, 2009 2:14 PM | Report abuse

I honestly find the US-China financial connection fascinating. As Scheiber points out at the end, it's like a "balance of financial terror", where one wrong move could destroy both economies. The fascinating thing about this is that this was not a planned thing - it simply emerged by economics.

Posted by: guardsmanbass | September 16, 2009 11:37 AM | Report abuse

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