versus slave—on people on the other side.41 In addition, even though China was not affect by the emerging market crises of the 1990s, the memories of the turmoil are still quite vivid with policymakers there, who have taken extra-precautions to prevent the kind of catastrophic events they observed in countries such as Thailand, Korea, Mexico, Russia or Brazil. Despite not having encouraged risky capital inflows in their own country, they worry about the loss of foreign lender confidence, the possibility of an overvalued exchange rate, and even the very idea of excessive short-term debt denominated in foreign currencies of the kind that led to painful crises elsewhere.

Because of these memories and fears, and the lack of trust in their relationship with the US (an “unreliable partner” at best and an “arrogant and recalcitrant slave”),42 their macroeconomic strategies embody a substantial dose of hysteresis. With that frame of mind, the Chinese authorities have resorted to the Confucianism principle of “He who will not economize will have to agonize.” They have built up large amounts of foreign exchange reserves, a strategy that has involved a shift towards surplus in China’s current account, reductions in gross private capital outflows, increases in gross capital inflows, or some combination of these measures. This war chest was not built for war but rather, to serve as a buffer against potential capital outflows.43 But in the context of exchange rate management, they also served to prevent the appreciation of the currency and the promotion of exports.

Global political economy factors should therefore be given prime consideration in the discussion of China’s current account surplus, as they provide another justification for the country’s Hegelian posture on issues of global imbalances. Globalization has provided a major impetus to China’s ambition of greatness, which obviously pre-dates the modern era.44 In a macroeconomic strategy that could be 41 One can find evidence of mutual suspicion in the results of various surveys. In OctoberNovember 2009, the Pew Research Center surveyed 1,000 foreign policy experts, including US government officials and university professors. 642 of them responded. Asked which countries or territories will be more important future US allies, 58 percent chose China, which ranked third in 2005. The research center also surveyed 2,000 civilians aged 18 or older about favorability of countries. 44 percent (highest number) China as the world's leading economic power (and the US second with 27 percent), which they only placed eighth in terms of favorability.

42 To understand the level of distrust of the US and the West in general among the Chinese political elite, see the recently published memoir of Zhao Ziyang, the purged Communist Party chief and former prime minister of China, who was removed from power in 1989 after he opposed the use of force against democracy protesters in Tiananmen Square.

43 This point is convincingly made by Bernanke (2005).

44 Once called upon by journalists to respond to criticism from the American President about his country’s poor track record on human rights, China’s President Jiang Zemin (1993-2003) reminded his interlocutor that it would be bizarre for him, the Head of a state that had more than 35