Without exaggeration, you can say that China is the largest exporting country in the world, though particularly to the western world where consumers are rich, or can at least make themselves believe so with a bank loan. In this context, people often talk about Chimerica; the American consumer doesn't consume products which are manufactured in the US any more, rather from China and from that the Chimerica economic system exists.

One of the main reasons that China is so huge when it comes to producing and exporting consumer goods and other products to the powerful western world is the fact that they "forge" the exchange rate of Chinese currency (Juan, also known as renminbi), not to strengthen the currency, on the contrary, rather then allowing it to strengthen in the wake of positive business with other countries, they buy huge amounts of currency and thus keep the exchange rate weak. The Chinese have 2500 billion in foreign currency, primarily in U.S. treasury bonds. That is the equivalent of the British GDP times 2. Due to this, the domestic demand in China is much weaker (amongst other things) but instead the external demand is greater with a corresponding increase in exports.

Because China has such a large economy, it has a profound effect on not only the countries that import Chinese products (they are building a business deficit against China), but also the neighboring countries which can no longer compete with the Chinese when it comes to export, where Juan is kept weak. This type of policy has been named "beggar-thy-neighbour"; domestic economic problems and policies are, in some way, turned over to the neighboring counties, including by undercutting them in global markets with their stable exchange rate weakening.

Understandably, the "beggar-thy-neighbour" policy is not particularly popular among those nations which suffer from China's prosperity. The obvious example is the relationship between the US and China, where the US have repeatedly demanded that the Chinese government stop weakening their domestic currency so that the trade gap between the two countries wouldn't get to uncontrollable levels, with following economic imbalances.

Another example would be when Germany were battling their way out of the dot.com bubble crisis. The European Central Bank lowered their interest rates, which resulted in a weakened euro. This was suppose to help the Germany economy on its feet again. The Germans increased their production for export as domestic demand was low - people had been collecting debts in the years prior to this and the weak euro didn't help the domestic market. The low interest rates, aimed at helping Germany, ultimately caused the euros peripheral regions to get stuck in the investment bubble that later evolved into debt problems; Portugal, Spain, Greece, Ireland, just to mention a few. A majority of European debts is the inheritance of this "beggar-thy-neighbour" policies of Germany from the early years of the Century. Its size caused a major imbalance for the European Union, and most European countries are paying the price today.

I have become very interested in national economics the last couple of weeks and the more I read into it the deeper I sink into a deep state of economic thought. My opinion is that national economics can be applied to any business, person or organization at any level or size.

For more info: http://centreforeuropeanreform.blogspot.com/2010/06/eurozone-retreats-into-beggar-thy.html.