China to Stop Buying U.S. Debt?

Discussion in 'China' started by LETHALFORCE, Jun 9, 2009.

  1. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,338
    Likes Received:
    6,290
    China to Stop Buying U.S. Debt? | theTrumpet.com


    China to Stop Buying U.S. Debt?
    February 27, 2009 | From theTrumpet.com
    China is investing in strategic resources instead. By Richard Palmer


    China has just under $2 trillion invested in America. Its appetite for U.S. debt allows the American government to continue to spend as if there is no tomorrow. But tomorrow is nearing. China is getting fed up with buying America’s debt. In a global recession, a lot of strategic assets are priced cheap, and China has a lot of money.

    According to official figures, China owns $1.95 trillion in foreign assists. Brad Setser of the Council on Foreign Relations says that in reality the figure is around $2.3 trillion. Setser estimates that $1.7 trillion of these assets are dollar denominated, making China the largest creditor to the United States. Last year, China lent America $400 billion—a sum equivalent to more than 10 percent of China’s gross domestic product.

    “Day after day, China is the single biggest buyer of treasury bonds in the market,” wrote Setser in a recent report. “Never before has the U.S. relied so heavily on another country’s government for financing.”

    But America may not be able to rely on China for much longer. “China is beginning to behave like a normal creditor,” warned Setser. The Financial Times details how China is thinking of investing its vast sums of money elsewhere (emphasis mine throughout):

    China’s near $2,000 billion (£1,380 billion, €1,560 billion) in reserves, the world’s largest, are often viewed outside the country as a great strength—an insurance policy against economic turbulence. But within China, they are increasingly seen by the public and even some policymakers as something of an albatross—a huge pool of resources not being used at home that will plunge in value if the U.S. dollar collapses. Why, people ask, should such a relatively poor country bankroll such a rich one?

    The article goes on to warn that “the consensus behind recycling foreign currency into U.S. government securities is coming under attack.”

    The State Administration of Foreign Exchange (safe), the organization that manages most of China’s reserves, last week announced it was thinking of changing its strategy. “We will actively expand channels and ways to use the foreign exchange reserves. In particular, we will explore how the reserves can better serve domestic economic development,” said deputy director of safe, Deng Xianhong.

    Even Zhou Xiaochuan, governor of China’s central bank, earlier this month asked, “Is it time for China to consider using the reserves somewhere else, instead of concentrating too much on the United States?”

    Instead of purchasing more U.S. treasury bonds, China is looking to use the money to buy up strategic assets. Many foreign firms are available for bargain basement prices due to the global recession.

    Already, state-owned aluminum group Chinalco plans to invest $19.5 billion in Rio Tinto Ltd in the largest overseas investment by any Chinese company. State-owned metals trader Minmetals plans to buy Oz Minerals Ltd, the world’s second-largest zinc miner, for $1.7 billion. State-owned China Development Bank will lend $25 billion to two Russian oil companies to be repaid through oil supplies. And state-owned Hunan Valin Iron and Steel Group has agreed to pay $650 million for a 16.5 percent stake in Australia’s Fortescue Metals.

    But this is just the beginning.

    “In the next stage, we will actively support the country’s need for forex reserves to expand domestic demand and increase imports,” said Fang Shangpu, another deputy director of safe. “We will provide financing support to companies investing abroad and serve the country’s economic growth.”

    According to the Shanghai-based National Business Daily, China also plans to use money from its $1.95 trillion in exchange reserves to set up a special fund to finance offshore oil extraction.

    On Tuesday, Chinese Commerce Minister Chen Deming left for Europe at the head of a 300-strong team to go on a multiple-billion-dollar spending spree. The group could spend $2.2 billion or “considerably” more on technology and manufacturing equipment, according to the China Daily. They went to Europe rather than the U.S., said Commerce Ministry spokesman Yao Jian, because “Europe has an obvious edge in providing us with the equipment we need.”

    The Chinese see that America’s economic policy could drastically reduce the value of their holdings in dollars. China cannot completely abandon the U.S. dollar without severely damaging the value of U.S. dollar assets that it already holds.

    But now that America is creating trillions of dollars of more debt, China’s U.S. investments are going to get damaged anyway. With that realization, China is thinking about spending its money elsewhere. It has signaled that it will keep buying U.S. treasury bonds, for now. But Americans should be worried that many Chinese officials are looking for other places to put China’s money.

    America’s days of unlimited borrowing are almost over. For more information, see our article “How This Recession Could Change the World.” •
     
  2.  
  3. EnlightenedMonk

    EnlightenedMonk Member of The Month JULY 2009 Senior Member

    Joined:
    Mar 7, 2009
    Messages:
    3,831
    Likes Received:
    21
    But, after China has stopped buying this debt, what will be the status of the 2.3 trillion dollars that the article is talking about ??? China certainly cannot liquidate it since the US may not be in a position to pay... what are China's options ???
     
  4. Yusuf

    Yusuf GUARDIAN Administrator

    Joined:
    Mar 24, 2009
    Messages:
    24,269
    Likes Received:
    11,230
    Location:
    BANGalore
    China can sell it in the open market. That will see the dollar crashing and its $2 trillion will change to about a trillion.
    But as the article states, China is now ready to risk that and use its money elsewhere.

    But then the other question is where will the US get its money from? Print more currency?
     
  5. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,338
    Likes Received:
    6,290
    currently there is no market for US debt nobody is interested in buying it or holding it including American financial institutions, maybe US government will buy it back from the chinese 10 cents on the dollar??
     
  6. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,338
    Likes Received:
    6,290
    Obama's stimulus is on hold because they don't have enough printing presses anymore.
     
  7. Yusuf

    Yusuf GUARDIAN Administrator

    Joined:
    Mar 24, 2009
    Messages:
    24,269
    Likes Received:
    11,230
    Location:
    BANGalore
    Hehe. They can get some Iranian help. They print quite a few of those.
     
  8. EnlightenedMonk

    EnlightenedMonk Member of The Month JULY 2009 Senior Member

    Joined:
    Mar 7, 2009
    Messages:
    3,831
    Likes Received:
    21
    They can borrow ours and print their currency, I'm willing to give it on lease, but we will accept payments only in Euros or Pounds :D:D:D:D
     
  9. yang

    yang Regular Member

    Joined:
    Mar 11, 2009
    Messages:
    358
    Likes Received:
    8
    Location:
    China
    This article is too old .
    I think in the short run, China has to buy a considerable amount of US Treasury Notes, for China has no choice, because USA would print paper currency as expectation, inevitably, no body can avoid dollar depreciation . If we buy the bond, we will hit by the financial losses, but if we don’t buy it, we maybe hit even harder (we can get a little interest more or less)
    China is not a fool, but it is a trouble to settle the problem, and we try to diversify our foreign exchange reserves , and we can also subscribe for the IMF bond actively. Zhou Xiaochun has proposed to create a special SDR in replacement for USD.
    In any case, it is a big problem for us.
     
  10. Yusuf

    Yusuf GUARDIAN Administrator

    Joined:
    Mar 24, 2009
    Messages:
    24,269
    Likes Received:
    11,230
    Location:
    BANGalore
    Thats why China is desperate for a new currency reserve, just to save its @ss.
     
  11. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,338
    Likes Received:
    6,290
    this article is not that old and very relevant to the present where Geithner and Clinton both visited China to convince China to continue buying.
     
  12. Yusuf

    Yusuf GUARDIAN Administrator

    Joined:
    Mar 24, 2009
    Messages:
    24,269
    Likes Received:
    11,230
    Location:
    BANGalore
    Guess thats why China doesnt give aid to Pakistan. It ends up giving it via the US!! Completely OT, but i just had to say it. Sorry.
     
  13. yang

    yang Regular Member

    Joined:
    Mar 11, 2009
    Messages:
    358
    Likes Received:
    8
    Location:
    China
    Geither? but I am afraid his words carry little conviction, when he gave a speech in Peking university, he said he is full of confidence in USD,and US treasury bill is safe, but the Chinese students burst into laugh suddenly.
    China just has to buy ,not because the goods are worthwhile to buy.
     
  14. badguy2000

    badguy2000 Respected Member Senior Member

    Joined:
    May 20, 2009
    Messages:
    4,954
    Likes Received:
    611
    whose ass is saved?
    :blum3:

    a certain country likes talking loudy while doing nothing;

    but we are always acting silently .

    CHina is signing agreements of currency-swap silently with lots of countries. those agreements will be the bricks of dollar's grave.

    we are silently preparing the bricks of dollars.
     
  15. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,338
    Likes Received:
    6,290
    Badguy when you wipeout the dollar what will you do with the debt you are holding? over one trillion and also japanese will not be with you in this cause it will be a lone endeavor because they are also holding a lot of US debt.
     
  16. yang

    yang Regular Member

    Joined:
    Mar 11, 2009
    Messages:
    358
    Likes Received:
    8
    Location:
    China
    It is a business in a long run, today no body can wipeout the dollars, but if people in the world all lose trust of USD, then maybe the time is ripe for make grave for USD. But it is hard in the foreseeable future.
     
  17. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,338
    Likes Received:
    6,290
    yang many feel that time has arrived, with US debt ballooning to to over 75% of GDP and set to further increase the dollar will not be the fiat currency it once was, Chinese realize this danger but the problem is the world would have to do it as a joint effort by all the central banks that would solve the currency issue but the worthless debt issue would still remain.
     
  18. Daredevil

    Daredevil On Vacation! Administrator

    Joined:
    Apr 5, 2009
    Messages:
    11,613
    Likes Received:
    5,669
    The only way chinese can save their ass is by buying assets abroad by dumping dollars , if any anybody is willing to sell them assets for depreciating dollar. Another way is to decrease their further exposure to dollar by trading in yuan and other currencies with other willing countries.
     
  19. badguy2000

    badguy2000 Respected Member Senior Member

    Joined:
    May 20, 2009
    Messages:
    4,954
    Likes Received:
    611
    now, both euro and China's RMB have not made full preparation to take over the postion of USD yet.

    keeping dollar is bad,but converting USD to a uncertain new currency like euro or RMB in hurry would be worse ,when either euro or RMB is no ready for the duty of global currency.


    Chinese would rather flawed status quo,rather than risk a uncertain disorder.

    to some extent , we Chinese and yankee have common interest in keep status quo.

    Chinese lost the courage of revolution and became the keeper of status quo long ago.

    MOD EDIT: Can't you understand a simple thing, don't use smileys unnecessrily. If you don't comply now I will start deleting your posts.
     
  20. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,338
    Likes Received:
    6,290

    will USA agree to RBM becoming a global currency? and would trade continue with USA at current levels if this is chinese aspirations?
     
  21. badguy2000

    badguy2000 Respected Member Senior Member

    Joined:
    May 20, 2009
    Messages:
    4,954
    Likes Received:
    611
    did UK voluteer in letting USD take the place of GBP?

    USD took the place of USD ,just because the economy power balance was out of the control of UK.

    a currency without the support of powerful material economy is doomed to fail.

    unfornately , China will have the global most powerful material economy , if not has yet,

    poor yankees would have only so called service section like banks and bars,when their factories are moved out or bankrupt.
     

Share This Page