Relating real-world stuff to what we do in the CFA curriculum, what would China’s US treasury holdings fall under? I know foreign exchange reserves should fall under the official reserves account, but would the treasury holdings fall under the current or capital account? I’m actually reading something on China being concerned about the size of the US deficit, and it says that China’s foreign exchange reserves total $2trillion and their holding of US Treasuries totals roughly $801.5billion. So that’s roughly 3trillion worth of denominated assets held by the Chinese govt. Yikes…
“Yikes” exactly
Only “Yikes” if they decide to dump it all at once … which they won’t.
squirrel.master Wrote: ------------------------------------------------------- > Only “Yikes” if they decide to dump it all at once > … which they won’t. Well, they can dump them gradually to keep the interest rate high.
squirrel.master Wrote: ------------------------------------------------------- > Only “Yikes” if they decide to dump it all at once If I remember correctly, that exact scenario was part of the plot line of a Tom Clancy novel. Can’t remember which one, but I think it was the same one where terrorists use a jumbo jet as a weapon by flying it into the Capitol Building.
Doesn’t Japan have more?
No, Japan is #2, but either one of them can trigger the end of the world scenario.
More likely they would use the new found power to demand more respect, more control and say in world affairs. It is like the big pink elephant in the room. It is like the europeans took north america from the natives by trading for plastic beads and now china has sold north america plastic toys and other usless stuff for currency which is backed by the countries that issue it and basically they will own the collateral
flynnch Wrote: ------------------------------------------------------- > More likely they would use the new found power to > demand more respect, more control and say in world > affairs. > > It is like the big pink elephant in the room. > > It is like the europeans took north america from > the natives by trading for plastic beads and now > china has sold north america plastic toys and > other usless stuff for currency which is backed by > the countries that issue it and basically they > will own the collateral Thanks for reminding me to invest in China. For now, the best we can do is to invest in HK’s H shares.
To answer the original question: China’s foreign currency reserves, for the exception of a small cash balance for trade settlements, are invested in risk-free government securities. So the $800b US treasury holding would be included in the $2 trillion reserve.
what’s more important is that China (incl. Hong Kong and Taiwan) are currently buying 50%+ of all newly issued US government debt. that is where the real power lies as the US and UK raise trillions over the coming years. so not only do they hold 25%+ of all outstanding debt, they control whether new debt can be sold at a reasonable price.
And the Chinese need a stable America to continue to buy their products, I would assume. Each hold each other by the balls? Yes, no?
We’ve got a weak uni-ball hold. Hey, we should focus on being financially responsible as a nation, that would be an idea.
i expect china to take their stab eventually. i wonder what would happen if they crashed the world economy and they are the only government who directly owns productive assets/businesses (Sinopec, PetroChina, CNOOC, China Mining, along with 249,996 more). every bank in the world would go under, but china’s banks are already part nationalized and while the west is reconstructing their banking system which is the epicenter of the entire economy, China forces its companies to operate and support internal demand. in doing so, if they are operating at full capacity and others (western companies) are operating at no capacity and if the world currency became gold, i’m sure China could buy other productive assets for a fraction of their cost today. also, China’s is one of the only central banks who is accumulating gold at the moment; why? if they believe in ongoing prosperity, they would have no need. they are also buying productive assets (see Addax Petroleum) at outrageous prices. They bought Addax at a peak 2007 price in early 2009. it didn’t make sense, they paid 200% its worth on paper. what makes it unique? its assets are mostly located in Nigeria. Africa is an area of the world where protecting against uprising and nationalization would be easy, if there were to be a global shutdown, especially if you have a 1 million man + army to deploy all around the world to protect those assets. also see purchases in iran and iraq by chinese oil companies. they are up to something. and my theory is that if there is political coup to overthrow the communist party in China, expect action to be taken by the communist party to rule not just China, but the world. think about it. the armies lie in the west, but no resources lie in the west. shut down our system and jump on the resources in africa and the middle east. beware a tighter chinese-russian alliance as well. that would basically cap the resource base for china. also see the fascist/totalitarian restraints and enforcement used by the communist party. they are not socialist or communist in any way. its just a title used to make us think they’re working together over there. see: http://ninecommentaries.com/
But are the Chinese really interested in silly things like ruling the world?? I never really got that feel, they seem to just do what they do and not take interest in the rest.
its not so much ruling the world as it is having direct control over resources necessary for economic growth. not so much ruling the world as it is ruling China, the Middle East and Africa and ruling the 2 latter ones by capital, not occupation… unless occupation is necessary.
I’m fine with that. Hopefully they spread xiao long bow everywhere, tastey goodness.