In addition, these reserves give the Chinese government and Chinese enterprises the power to project a certain degree of financial clout around the world, even in the United States. The greater the reserves, the more China's government can buy large blocks of U.S. government bonds. The greater China's holding of bonds, the more it can impact the price of U.S. government bonds and U.S. interest rates. The relevance of the potential clout that China gains by accumulating U.S. government bonds should not be too easily dismissed. Despite the continued economic growth in the Chinese economy, the growth in exports and foreign reserves, there has, nevertheless, been some negative impact on China from the region-wide economic crisis.
China exports mostly labor-intensive goods.
Labor intensive goods are those for which the largest share of the unit cost is the cost of labor. The kind of labor that goes into producing these goods is also relatively unskilled labor. Goods like textiles and toys come to mind. In order to provide these goods to buyers at competitive prices, Chinese manufacturers must keep their costs down. The wage that matters in international competition is, however, not the wage as denominated in the domestic currency, but the wage as translated into U.S. dollars.