What’s well known is that China keeps about two thirds of its enormous monetary reserve in US dollars. What’s less well known is that China’s sovereign wealth fund, organized to diversify China’s portfolio into higher yielding assets, is also heavily invested in the US.
In fact, according this Bloomberg report, China currently has 60 percent of its global sovereign investment portfolio in US assets.
Interesting, to say the least, that a country widely believed to be in terminal decline, its best days behind it, paralyzed by dysfunction and generally ready for the glue factory remains the obvious investment choice for the country that supposedly will bury it.
This fact also points to something that many commentators forget. For all the tension and rivalry in the relationship, the US and China have a great many interests in common. We are joined at the hip.
Building and deepening these mutual dependencies is an important element of American foreign policy. We want China so bonded to us and to the international system that it will never do what Stalin, Hitler and Tojo tried and seek its destruction.
America’s goal is not to defeat or frustrate China but to entice, inveigle and charm it into becoming a pillar of an international system that supports peace, prosperity and ultimately liberty for all. That goal may not be reached, but we are doing much better at this than most people realize, and these investment figures underscore the degree to which the smart money in China understands that the brightest possible future is one that the US and China build together.
Ultimately, China can only spend the US Dollars it accumulates through trade inbalances on either US debt, stocks, companies or real estate. Its dollar reserves have to be spent in the USA. They really have no choice in the matter.
“For the first time ever, humans beings all around the world are part of the same political and economic order.” WRM, your brief short above provides context to “The Meaning of It All” (a system that supports peace, prosperity and ultimately liberty for all) thanks.
Investors are fleeing China and 60% of China’s foreign investments go to U.S. Appears investor/capital class moving assets and rebalancing via short term projections as well hazarding predictions influenced by econometric models, global markets, and human behavior… (China will avoid growth slump while defusing inflation – minimum 60% downpayment for mortgages extended by Chinese banks). Can anyone truly do more than hazard a guess?
I really think you read my “Hamiltonian Plan” comment to a previous article.
It may be that they are worried that if they sold a lot more of those dollars for other currencies, it would drive down the value of the dollar in currency markets than they’d like to see. That would make their large stash of dollars less valuable for buying things in non-dollar-denominated countries, or for buying commodities from other countries such as iron ore, copper, oil, foodstuffs, which tend to rise when Ben prints lots of dollars (as he’s been doing ever since the fin. crisis of Sep-Dec 08).
Yes, maybe they see the US as a good investment, too. That would be nice, but maybe it’s just “two drunks trying to hold each other up?” Stole that phrase from economist Arnold Kling, who probably borrowed from someone else.
Gee, reading the coming problems with the Chinese overbuilt real estate market, it’s dodgy loans on its banks – loaning to much money to local governments building too much infrastructure, I hope it isn’t the “Two drunks holding each other up” scenario.
Is the MF Global bankruptcy another AIG type collapse? Another failure of the massive “shadow banking system”?
Mark@5: “MF Global Bankruptcy”
Yes, that is indeed what we are facing…
@ WRM – “Building and deepening these mutual dependencies is an important element of American foreign policy. We want China so bonded to us and to the international system that it will never do what Stalin, Hitler and Tojo tried and seek its destruction.”
In that case we better learn how to do economic redistribution.
The fact that the Chinese are now collecting rents that might otherwise go to American investors is not particularly comforting to me.