No wonder they want to invent a reserve currency that has some merits over the United States Dollar. It would be a form of methadone treatment:
China, the U.S. government’s biggest creditor, increased its purchases of American securities in February just weeks before the country’s officials questioned whether such investments were safe.
While China’s purchases slowed and most were in short-term Treasury bills, the country remained the largest foreign holder of Treasuries after its holdings rose 0.6 percent to $744.2 billion, according to a monthly report released in Washington.
We have long considered hollow the cries that the Chinese might abruptly cut off their large-scale purchasing of Treasuries. To do so would be cutting their own throat as their own prosperity is tied quite directly to their ability to find and fund customers for their chief exports (cheap labor and manufacturing). It is worth pointing out that Chinese leaders are not afraid of being deposed. They are afraid of being shot if they break the grand bargain they struck with their subjects: keep us in power, we’ll give you a taste of capitalism and the trappings of upward mobility, but we will manage that social stuff and political voice for you.
China Bought More U.S. Securities Even as Its Concerns Grew [Bloomberg]
One day China will kick the habit, and those who think otherwise are whistling past the graveyard.
~the Muleskinner~
The Chinese have been willing to take negative returns (factoring in exchange rate adjustments) on their investments in the US because they don’t trust their own bankers. Now that they don’t trust ours, either, it’s anyone’s guess what they’ll to next.
@1 Something that can’t go on forever won’t. China’s problem is that the longer it waits to kick the habit, the more painful it gets. They should have done so in 2004/05. It’s a foregone conclusion that at some point they’ll stop buying as many dollars, it is also a foregone conclusion that the Yuan will rally against the dollar, Chinese exports will be less competitive than Vietnam/Thailand/whomever, Chinese jobs will be lost, Chinese social stability will be rocked, etc…
@2 China hasn’t been buying dollars because they don’t trust their bankers but do trust ours, they’ve been doing so because a country can’t control its capital account, set interest rates, and peg its currency. To solve the problem, the Chinese have bought dollars, the currency the Yuan is “functionally” pegged to. Otherwise, the PBOC would have to turn around and sell the dollars it buys, which would drive down the dollar, making Chinese exports more costly.
you’re scared, you little beeyotch. can’t take your mind off of it.
@ 4
re: China’s exports…
Eventually, her people will be her own consumers and that means less reliance on exports which also means less imports from, by then, exporting countries you’ve mentioned and others.All they need is work on improving the lives of people until they can create at least 700 million middle class.
Younger Chinese are againts the government’s “addiction” to dollar even those whose fathers are bankers and officials especially those with foreign educations…sort of internal clash.