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| China-Japan-Koreas | |
| China to stick with US bonds | |
| 2009-02-12 | |
| China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its “only option” in a perilous world, a senior Chinese banking regulator said on Wednesday. China has used the dollars it accumulates selling manufactured goods to US consumers to accumulate the world’s largest holding of Treasuries. However, the increasing US budget deficit and its potential impact on the dollar have raised questions about the future Chinese appetite for US debt. Luo Ping, a director-general at the China Banking Regulatory Commission, said after a speech in New York on Wednesday that China would continue to buy Treasuries in spite of its misgivings about US finances. “Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.” Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.” However, Mr Luo said Chinese officials would encourage its banks to finance domestic mergers and acquisitions rather than provide rescue finance to distressed financial companies in other countries: “There will be no bottom-fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books.” Mr Luo said China intends to maintain its separation of investment and commercial banking based on its observations of the US after repeal of the Glass-Steagall Act that enforced a similar division of banking activities. “To some extent, Glass-Steagall has fuelled the crisis,” Mr Luo said. “The separation of commercial and investment banking is likely to stay longer [in China] than before.” Like senior financial officials in other developing nations – such as Mohammad Al Jasser, vice-governor of the Saudi Arabian Monetary Agency – Mr Luo also spoke out against what he called America’s laissez-faire capitalism. “Government ownership was viewed as something negative but the pendulum is swinging the other way. Perhaps banking is [no different from] public utilities where government participation is necessary,” he said. “Deregulation in the US has gone a little bit too far. The market can’t be omnipotent.”
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| Posted by:Steve White |
| #9 $2 trillion in US bonds is a damn good reason for the Chinese to not let the Yuan float. However, there is no way they can soak up a likely $2 trillion 2009 US gov deficit, so the dollar will have to (free?) fall against floating currencies. And so goes the Yuan. Import costs will dramatically rise while exports will fall in this economy, leading to Chinese (and even larger US) trade deficits and more wealth being sucked out of both economies. So the Chinese can take their medicine now or take a larger dose later. |
| Posted by: ed 2009-02-12 17:20 |
| #8 Moose is right. China will take a hammering on it's US treasury holdings. Buying more would be like a gambler doubling up in order to get out of the hole. 2009, the year countries went bust. As a practical matter, you are bust when no one will lend you more money. |
| Posted by: phil_b 2009-02-12 16:17 |
| #7 So, like it or not, we and the Chicoms are in this together. I think that with the out of control debt that Congress made, we are both trying to muddle through. This is not good policy for the world's largest economy. We have 2 years before we have a slim chance of turning this whole economic mess around with the Congressional elections in 2010. The question is: how close to the tipping point are we? |
| Posted by: Alaska Paul 2009-02-12 11:19 |
| #6 Hellish, "If they don't buy them demand drops considerably, the price drops, " As I understand it, the current rate on bonds is virtually 0%. Given that, why is there any demand at all? The best I can come up with is that T-bills are the mattress under which the Chinese are hiding their cash. It's not going to earn a thing, but, they figure that they can always get the principle back. That must mean that they figure every other investment is worse, no? |
| Posted by: AlanC 2009-02-12 10:10 |
| #5 They don't buy them, we don't buy what their factories make. Their problem. Borrow $5,000 you've got a creditor. Borrow a trillion, you've got a partner. |
| Posted by: Nimble Spemble 2009-02-12 09:06 |
| #4 It doesn't matter if they continue to buy them. All else being equal, they would need to more than double the *rate* at which they buy them, *and* other bond holders, especially Japan, would have to not continue to sell their bonds as well. At this point, the Chinese are reinforcing defeat, hoping not to lose what they have already invested. They're too late. |
| Posted by: Anonymoose 2009-02-12 09:04 |
| #3 If they don't buy them demand drops considerably, the price drops, the value of the ones they already hold drop, no? They don't really have a choice do they? |
| Posted by: Hellfish 2009-02-12 08:41 |
| #2 ..does it really matter since we appear to be..... "too big to fail?" For now. However, what ever you think of the Chinese, they do appear to be fast learners who are not hobbled by over regulation and lawyers [or the dire need to bring pork back home to the district]. Darwin's thesis is that successful 'adaptation' to environment is the key to long term survival of an entity. The Chinese do appear to be both pragmatic enough and in possession of long term vision to alter that state 'for now' in a number of generations. It's their own internal structural issues that they need to address to allow it to happen. |
| Posted by: Procopius2k 2009-02-12 08:38 |
| #1 Must we learn economics from a nation that uses slave labor, or does it really matter since we appear to be..... "too big to fail?" |
| Posted by: Besoeker 2009-02-12 06:19 |