Monday, July 31, 2006
By the end of the year, China's foreign exchange reserves will likely exceed $1 trillion. This is a huge amount of money, about 43% of China's gross domestic product, and easily the largest reserve stockpile in the world. It is also far more than China needs. Yet with the mainland absorbing some $20 billion to $30 billion worth of capital inflows a month from its trade surplus, foreign direct investment, and other sources, there seems to be no stopping it.The Americans & we have sought the illusion of power by killing people, known as "punching above our weight". The Chinese have achieved the reality by creating wealth. Good for them.
The Chinese money machine raises two big issues. Much attention has been focused on how best to stop the reserves from increasing further and whether Beijing financial authorities should let the yuan appreciate. Let's put that debate aside for the moment and dwell on another more interesting question: What should China do with all this money?
This topic has triggered a lot of debate in China. Discussion has focused on whether China should buy fewer U.S. government bonds, just in case the dollar falls in value and China is left with less valuable securities. Some analysts and quasi-government types have floated the idea of buying oil and other raw materials, given China's obvious needs......
Oh yes - they also have a growth rate of 10.9%. The US has just had a 3 month equivalent to 2.5%. I doubt if the UK will match the US & Scotland certainly won't. We could at least do nearly as well if we tried.