Can Crisis in China Affect the World?

chinaChina has emerged as the major financial hub in the world in present times and the enormous growth it has seen in the last few years is likely to continue in the times to come as well. Experts from across the globe have started comparing the country to some of the most powerful nations of the globe including Russia and USA.

Predictions are already doing rounds on when China will surpass USA to become the strongest country in the world in terms of financial as well as military ability. However, with the rise comes a threat as well. In case of a political unrest, civil war or even a financial failure of China, the impact on the globe can be enormous. Here is a look at the details.

When it comes to foreign buyers of US debt, China is on top of the list and has US treasury bonds worth around $1.2 trillion. This helps in US buying Chinese goods with ease. It is also used in maintaining the largest army of the world which support the foreign policy of the United States in different areas across the globe.

If China decides not to participate in US Treasury bond auctions and dump the same in large amount in open market, the US bond market as well as Dollar will collapse in no time. The dollar will not be able to carry with its value as reserve currency and there will be a huge imbalance in world economy.

The biggest impact would be on the petrodollar arrangement. OPEC has agreed to sell its oil in international market in dollars since 1975 so the demand and value of Dollars is important for all the nations. If Dollar loses its value in international market, the OPEC will stop accepting the currency for oil.