Small Changes Produce Big Effects
The United States has just about opposed every recent action that China has taken in hopes of improving its relationships with other nations and with the United States itself. Whether it is aiding Africa’s infrastructural development to befriending a number of both America’s allies and enemies, the United States in almost every step of the way has confirmed its dissidence towards China’s intentions. Not only does United States question the true intentions of China, but the nation also worries that China’s growing dominance in international affairs is dimming its light and potentially sabotaging its relationships with other nations. As a result, the United States sees China and everything the country has engaged in recently as possible threats.
Previously, the United States saw China’s involvement in shadow banking as harmless because China’s economy before 2005 was fairly weak. China’s pre-2005 economy lacked exports, total factor productivity was mitigated by the vast employment pool and small number of jobs available, and China’s amount of capital was stagnating due to the fact that existing technology was not allowing complete production of goods. Recently, however, the United States acknowledges the strides in developmental and economic growth that China has experienced. Economically, China has produced more than what was expected and unemployment is at an all time low due to the increasing number of jobs available in the market. Autonomous consumption post-2005 has also increased, following the market’s surge in available output and flow of money and goods. All in all, China is doing well for itself economically.
On the other hand, shadow banking muddles China’s economic situation. Combined with the fact that studies are showing that more than thirty percent of China remains impoverished, the United States as a nation worried about its own future and its own relations with another up-and-coming powerful nation that could knock the United States off its rank as one of the most influential nations, views shadow banking as a downright illegal activity. Secretary of State John Kerry in multiple panels has emphasized his concern for China’s lack of transparency in dealing with internal accounts of revenue. The lack of transparency on China’s part translates to overall imbalance of the world’s monetary funds. Not knowing where funds come from and ultimately end up, the premise of shadow banking activity, can be especially detrimental to the international stock market. For example, inflation can arise from China overcompensating for its nonexistent domestic funds through shadow banking and mere reporting, thereby tipping the balance of the
