xinhui

I am pretty sure China didn’t sell Treasuries in April (or May, for that matter)

Posted on Friday, June 19th, 2009
Brad Setser: Follow the Money Blog Archive I am pretty sure China didn’t sell Treasuries in April (or May, for that matter)

By bsetser

The fall in China’s recorded Treasury holdings in April has attracted a fair amount of attention. Too much, in my view. ]Best that I can tell, China shifted from bills to short-dated notes in April rather than actually reducing its overall Treasury portfolio. It just so happens that China buys all its short-term bills in ways that show up in the US TIC data, but only a fraction of its longer-term notes in ways that show up in the US TIC data. A shift from bills to notes then could register in the US data as a fall in China’s total Treasury holdings and a rise in the UK’s holdings.

This is actually a well established pattern. The past five surveys of foreign portfolio investment in the US have all revised China’s long-term Treasury holdings up (in some cases quite significantly) even as they revised the UK’s holdings down. The following graph shows the gap between Chinese long-term Treasury purchases in the TIC data and China’s actual purchases of long-term Treasuries– as revealed in the survey. With the help of Arpana Pandey, I have smoothed out the impact of the survey revisions. But when there is a hard data point — say June 2006 — the y/y increase in China’s Treasury holdings in the adjusted series should match the increase in the survey.

china-april-tic

The last survey data point though comes from June 2008, so the subsequently data includes some estimates — specifically estimates of the share of the UK’s Treasury purchases that should be attributed to China. I am pretty confident though that it is no more inaccurate than the published US TIC data, which systematically under counted Chinese purchases of long-term bonds over the last five years

Here are three signs to watch to know when China really is reducing its US holdings.

First, the TIC data should show a fall in China’s holdings, i.e. net sales of Treasuries.

Second, the TIC data should also show limited purchases of Treasuries through the UK. The fall in China’s holdings should not be offset by a rise in the UK’s holdings.*

Third, the Fed’s custodial holdings should not be rising at a strong clip — as, given China’s size, it is hard to see how China doesn’t make up a large fraction of all custodial holdings. Mathematically, it is impossibe for China not to be largest holder of Agencies at the New York Fed, and it is hard to see why it wouldn’t also hold a decent chunk of its Treasuries there.

In April, only one of those three things happened. China’s recorded holdings fell. In my book, that doesn’t meet Accrued interests’ call for “hard evidence” that China actually is reducing its holdings. Not when there were also large purchases of notes through the UK, and in the past much of that flow has ultimately been reattributed to China. And not when there was a fairly strong rise in the Fed’s custodial holdings.

The best explanation for that combination of facts is that China was shifting a small fraction of its portfolio out of bills (hence the fall in it bill holdings) and into short-term Treasury notes (hence the rise in direct Chinese note purchase and UK note purchases).

The TIC data for China has too many problems to be taken at face value. Just using the unadjusted TIC flow data — the kind that is often downloaded from Bloomberg — to estimate China’s total purchases of US assets produces a result that doesn’t match the revised data in the United States final balance of payments data. Nor does it match the known stock of Chinese holdings, which gets bumped up when the survey data is released.

To be sure, the pace of growth in China’s overall US portfolio has slowed. That certainly reflects China’s decision to lend more money to a host of commodity exporters — and its decision to stockpile key commodities. That has cut into the funds available to invest in the US.

And the pace of growth in China’s Treasury portfolio has also slowed.

But that is to be expected. Much of the growth in China’s portfolio, and indeed much of the overall growth in central banks Treasury holdings, over the past year has reflected a shift out of risk assets. Central bank purchases of Treasuries have actually been running far above total global reserve growth for the last couple of quarters. That cannot last forever.

china-april-tic-2-imf-and-bea1

Some reduction in the pace of inflows into the Treasury market was always to be expected if reserve growth didn’t pick back up.

But the data on reserve growth in the chart is also a bit out of data, as the IMF has yet to release data for q1 — and the end of q2 is now drawing near. Reserve growth likely remained weak in q1 09, but seems to have picked up in q2. That could support a more sustainable inflow into the Treasury market —

At least if major governments remain adverse to credit and equity market risk. That though may also be changing. At least the China Investment Corporation is once again taking risks. Lou ji-Wei is apparently worried about missing ‘opportunities near the bottom of the market.”

The CIC was actually quite conservative in 2008, no doubt in reaction to its losses on its high profile 2007 investments. SAFE took on far more risk. Now it seems that roles may have reversed once again. The overarching reality about China is that it now has so much money that it can now do a little bit (or even a lot) of almost everything.

* The US only tracks the initial sale of a bond to an investor abroad. Subsequent sales never into the TIC data, though they are often picked up in the annual survey.

This entry was posted on Friday, June 19th, 2009 at 1:25 am and is filed under China, central bank reserves. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Tomluter

Geithner's Last Laugh
washingtonpost.com
By David M. Smick
Tuesday, June 9, 2009

Tim Geithner can't seem to catch a break. Our Treasury secretary was at Beijing University last week to assure the Chinese that their dollar investments were safe. The audience broke into laughter.

The Chinese should be wary of such hubris. While America's public finances are troubling, to say the least, Beijing and the rest of the world should examine the future for economies, including China's, that have become overwhelmingly dependent on exports. Their future looks as problematic as the future of the debt-ridden United States.

As ugly as the credit markets have been, trade has been worse. Since World War II, global trade has grown twice as fast as gross domestic product. But things have shifted with the downturn. For starters, the exports of the world's three biggest exporters -- Germany, Japan and China -- are 33 percent lower than they were a year ago. With American imports down by roughly the same amount, two-way trade has contracted by $1.5 trillion. There are real questions as to whether this development is more than a temporary pullback and will evolve into a quiet shift toward a new era of deglobalization.


Those in that snickering Chinese audience should consider that, on paper, the United States looks relatively immune to this trade collapse. American exports are 11 percent of GDP, according to the World Bank. Compare this to the exports-to-GDP ratios, for example, of China (42 percent), South Korea (46 percent), Germany (47 percent) and Thailand (73 percent).

Policymakers from these economies need to ask themselves: What happens if the U.S. consumer -- the world's consumer of last resort -- pulls back permanently, as seems distinctly possible?

True, these countries are scrambling to stimulate domestic consumption. This will be tough, though, given their aging demographics almost across the board (as people age, they save more and consume less). In China, with no social security system or much in the way of a safety net of governmental services, families save 50 percent of their income.

In Germany, policymakers have gone out of their way to limit consumption and reduce wage gains as a means of dramatically improving the economy's global competitiveness. Yet with global demand for German capital goods waning, Germany is in trouble with serious industrial overcapacity even as consumption remains modest. The Germans' secret hope? That the U.S. consumer locomotive starts moving again at full speed.

Beijing boasts of its big stimulus package. Yet the government's efforts to stimulate domestic consumption appear to be not much more than a large subsidized lending operation, a stimulus that is unlikely to be sustainable. A lot of the stimulus was supposed to derive from spending by regional and local governments that never materialized. Moreover, transforming China into a consumer economy to compensate for lost exports will take years. Meanwhile, Beijing, too, secretly hopes the U.S. consumer will quickly come to the rescue.

The world may be waiting longer than it expects. The United States may be undergoing a subtle economic shift. World governments should listen carefully to President Obama, a leader with an uncanny ability to make activist, even radical, proposals sound benign. At the Group of 20 summit in London, for instance, Obama said that the United States cannot be the world's consumer. On the surface, this sounds like a statement about the temporary condition of the business cycle.

Actually, Obama was talking about something far more significant -- not outright Smoot-Hawley-style protectionism but a coming policy of small tax, spending and regulatory changes that will encourage this quiet trend toward deglobalization. Like it or not, this shift reflects a growing Washington mind-set that globalization has gone too far. Witness the Buy American provisions on Capitol Hill. Obama is playing not only to his union supporters but also to a segment of the U.S. corporate community whose enthusiasm for the global supply chain and "just-in-time" inventory management is waning.

And the coming rise in shipping costs has the potential to turbocharge this deglobalization process. The U.N. agreement last October on sulfur-burning levels for ships (not to mention California's own restrictions on ship emissions) are expected to send shipping costs skyrocketing. A decade from now, it may be profitable to send by sea only items with relatively high value to weight, such as laptops. Analyst Philip Verleger argues that the net result could well be that a lot of low-wage jobs that moved to China, India and other emerging markets will move back to the West. This is already happening in the furniture industry.

But here's the punch line: A capital-dependent America can't decouple from the world, or we will face the danger of our own hubris. America needs the world's capital as much as the world needs American consumers -- an economic situation tantamount to a policy of mutually assured destruction. True, the global system needs rebalancing. But until that happens, all parties need to limit the public lectures and snickering, and think seriously about how to achieve a permanent worldwide recovery despite serious headwinds.

----------------------------
The Chinese audience laugh not for hubris. but for comic effect.

xinhui

And you call Chinese nationalistic.

xinhui

NPR did a great job in explaining IMF's SDR



Planet Money
In IMF Bonds, A Possible Rival For The U.S. Dollar

by David Kestenbaum

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Chinese Premier Wen Jiabao
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Liu Jin

In March, Chinese Premier Wen Jiabao warned the United States to guard the value of its currency. AFP/Getty Images



All Things Considered, July 2, 2009 · In times of global economic crisis, the International Monetary Fund lends money to nations in trouble. But in the current recession, the IMF has found that it, too, is running out of money.

"We have made quite a large number of commitments of our resources in the last year," says Craig Beaumont, division chief of the IMF's finance department. The organization has loaned out about $150 billion, leaving it with just another $50 billion on hand.

Now the IMF has decided to raise an additional $70 billion the same way large companies do — by issuing bonds (a first for the IMF).

That part of the story is simple enough, but the IMF bonds touch on a far more profound topic: namely, what the world's reserve currency should be. Reserve currency acts as an anchor and a safe haven. It's the currency everyone measures their own against, and the one everyone reaches for in times of trouble. Right now, the world uses the U.S. dollar.

But emerging players like China and Russia have said they wouldn't mind if that changed.

And that's where this story gets more complicated. The IMF's new bonds aren't denominated in U.S. dollars. Instead, they'll be issued in a kind of hybrid called Special Drawing Rights. SDRs are a mixture of the U.S. dollar, the British pound, the euro and the Japanese yen.

The IMF uses SDRs internally, to calculate the money it lends to various nations. A few months ago, the head of China's central bank suggested that SDRs could become the basis for a new kind of global currency.

"The emerging markets are hoping, and China in particular is hoping, that this will start the debate," says Eswar Prasad, a Cornell University professor who once led the China division at the IMF. The bonds could "also start some real progress toward challenging the U.S. dollar's dominance in international financial markets. The Chinese would dearly like to break free of the embrace they have of the U.S. dollar, because they have no alternative, and they would desperately like to have an alternative."

The Problem Of Dollars

Beaumont, of the IMF, is quick to point out that Special Drawing Rights are absolutely not a currency. They're more of an accounting tool, a way to track where the IMF's money is going.

"No one ever carries SDRs around in their pocket," he says.

The problem for China is that it has more money coming in than it knows what to do with. It sells tons of stuff to the U.S. and gets billions of American dollars in return. Where should it put those dollars? Often, China buys U.S. Treasury bonds, because they're the safest investment around.

The IMF bonds will also be very safe, because they're essentially backed by the entire world.

China has pledged to buy what amounts to $50 billion of the new bonds. Russia has pledged to buy up to $10 billion, and so has Brazil.

Against the scale of the global economy, Prasad says, these amounts are relatively small. But if countries decided they didn't trust Treasury bonds so much anymore and began moving a lot of money elsewhere — say, to IMF bonds — that could be a big deal. It could spook the U.S. bond and currency markets, he says, and they are in a fragile mood.

There are a lot of reasons to think China, for all its trash-talking about the dollar, doesn't want to knock it too much. Brad Setser, an economist at the Council on Foreign Relations and an expert on the relationship between the Chinese and American economies, says Beijing would hurt its own cause by moving away from the greenback. "I don't think this is a step toward a new currency that is going to rival the dollar," Setser says.

That's because China needs the dollar to remain strong. It happens to hold more than $700 billion in U.S. Treasury bonds. And it's still buying more.
In IMF Bonds, A Possible Rival For The U.S. Dollar : NPR

xinhui

China’s Currency Reserves May Top $2 Trillion for First Time
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By Bloomberg News

July 10 (Bloomberg) -- China’s foreign-exchange reserves probably topped $2 trillion for the first time, drawing attention to the difficulty the government faces in finding places to invest the world’s largest holdings.

The reserves climbed $67.8 billion to $2.022 trillion as of June 30 from three months earlier, according to the median estimate of six economists surveyed by Bloomberg News. That would compare with a $7.7 billion gain in the previous quarter. The central bank may release the number today or next week, based on the timing of previous announcements.

Central bank Governor Zhou Xiaochuan ruled out any sudden change in the management of the reserves last month after proposing that governments investigate setting up a supranational currency. Premier Wen Jiabao is concerned that China’s $763.5 billion of Treasury holdings may fall in value as the U.S. sells record amounts of debt to fund stimulus spending.

“There’s no obvious alternative for China to U.S. Treasury bills,” said Stephen Green, head of China research at Standard Chartered Plc in Shanghai. “The alternatives are limited for that much money.”

China’s reserves more than doubled in two and a half years as the trade surplus pumped cash into the economy, fueling claims that the nation’s currency is kept artificially low to help exporters. The International Monetary Fund may describe the yuan as “substantially undervalued” in a pending report, according to a person who has seen the draft.

Obama, Geithner

President Barack Obama is counting on China’s support as he sells debt to fund his $787 billion economic stimulus plan. Treasury Secretary Timothy Geithner said during a visit to Beijing on June 2 that Chinese officials expressed“justifiable confidence” in the strength of America’s economy.

China will continue to buy Treasuries because alternatives are too risky or won’t soak up enough money, said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong.

Kowalczyk also highlighted political opposition around the world to Chinese investment, citing miner Rio Tinto Group’s rejection of Aluminum Corp. of China’s proposed $19.5 billion investment. The scrapping of the deal was followed by Chinese allegations that Rio staff stole state secrets.

China Petrochemical Corp. is spending $7 billion to acquire Geneva-based Addax Petroleum Corp. and secure oil reserves in Iraq’s Kurdistan region and West Africa. China’s sovereign wealth fund, meanwhile, has lost money on investments in Blackstone Group LP and Morgan Stanley.

‘Hot Money’ Inflows

The latest gain in the reserves was probably driven by the trade surplus, higher valuations for non-dollar assets because of the U.S. currency’s weakness, and inflows of speculative capital, or so-called “hot money,” Kowalczyk said, adding that investors are attracted by an economy that’s growing when others are shrinking.

China’s benchmark Shanghai Composite Index has soared more than 80 percent from last year’s low on Nov. 4. The government kept the yuan stable in the past year after the currency gained 21 percent against the dollar between July 2005 and July 2008.

To contact the Bloomberg News staff on this story: Paul Panckhurst in Beijing at ppanckhurst@bloomberg.net
Last Updated: July 9, 2009 12:00 EDT
China?s Currency Reserves May Top $2 Trillion for First Time - Bloomberg.com

xinhui

China and the dollar
Yuan small step
China and the dollar: Yuan small step | The Economist
Jul 9th 2009 | HONG KONG
From The Economist print edition
The dollar’s role as the world’s main reserve currency is being challenged

Illustration by S. Kambayashi

THE Chinese used to call dollars mei jin, which means “American gold”. Buying black-market dollars was considered the safest way to protect one’s savings. Yet in June when Tim Geithner, America’s treasury secretary, told students at Peking University that China’s official holdings of Treasury bonds were safe, the audience laughed. Faith in the greenback is waning.

In the build-up to the annual summit of G8 countries, which began on July 8th in the Italian city of L’Aquila, officials in China, Russia and India all called for an end to the dollar’s dominance in the international monetary system. Dmitry Medvedev, Russia’s president, declared on July 5th that the dollar system is “flawed”; his central bank has been reducing its dollar holdings. The People’s Bank of China (PBOC), China’s central bank, repeated its call for a new global reserve currency in June and is now taking the first steps towards turning the yuan into a global currency.

Beijing is particularly influential in this debate. The dollar accounts for 65% of the world’s foreign-exchange reserves (see chart), only slightly less than a decade ago and well ahead of the euro’s 26% share. Three-quarters of all reserves are in the hands of emerging economies; China alone holds one-third of the global stash.

So China has particular cause to worry that America’s massive printing of money in response to the financial crisis will undermine the value of its dollar reserves. There is much domestic anger about the potential losses China may face as a result of its lending to rich Americans. The government would like to diversify out of dollars: its new purchases of Treasury securities have fallen sharply this year. But any attempt to dump its stock of dollars would risk triggering a plunge in the currency. Instead, officials are mulling two ways out of the “dollar trap”: persuading the world to adopt a new global currency and encouraging the international use of the yuan.

In an essay in March, Zhou Xiaochuan, the governor of the PBOC, argued that basing the international financial system on a national currency will tend to exacerbate global imbalances. The dollar’s reserve-currency status let America borrow cheaply, causing the country’s credit and housing bubbles to persist for longer than they otherwise would have. Mr Zhou proposed that the world should replace the dollar with a global reserve currency, the SDR (Special Drawing Rights). Created by the IMF in 1969, and now based on the weighted average of the dollar, euro, yen and pound, the SDR was designed as a reserve currency but never took off. SDRs today add up to less than 1% of total reserves.

Under Mr Zhou’s plan the amount of SDRs would be hugely increased and the basket expanded to include other currencies, notably the yuan. Mr Zhou also proposes an SDR-denominated fund, managed by the IMF, into which dollar reserves could be exchanged for SDRs. Countries could then reduce their dollar exposure without pushing down the dollar (although it is unclear who would bear any exchange-rate losses).

Brazil, India and Russia have backed Mr Zhou’s proposal. But the SDR is unlikely to become a reserve currency any time soon. It would take years to develop SDR money markets that are liquid enough to be a reserve asset. Although the IMF’s executive board approved the first issuance of SDR-denominated bonds on July 1st, as the fund attempts to boost its resources, the bonds can only be bought and traded by central banks, not by private investors.

China’s alternative ploy is to promote the yuan’s use in international trade and finance. Starting on July 6th selected firms in five Chinese cities are now allowed to use yuan to settle transactions with businesses in Hong Kong, Macau and ASEAN countries. Foreign banks will be able to buy or borrow yuan from mainland lenders to finance such trade. In June Russia and China agreed to expand the use of their currencies in bilateral trade; Brazil and China are discussing a similar idea.

The PBOC has also signed currency-swap agreements with Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea. The central bank will make yuan available to pay for imports from China if these countries are short of foreign exchange. In another recent move, Hong Kong banks are now allowed to issue yuan-denominated bonds, a step towards building an offshore yuan market.

Qu Hongbin, an economist at HSBC, predicts that by 2012 nearly $2 trillion of annual trade (over 40% of China’s total) could be settled in yuan, making it one of the top three currencies in global trade. Others reckon this is too optimistic. Although Chinese firms are keen to invoice in yuan, trading partners will be more reluctant. There is no real forward market for the yuan, making it hard to hedge risk, and it is not accepted by most other countries.

The yuan will be used more widely for trade over the next decade but the idea that the yuan can become a reserve currency in the near future is ridiculous, says Arthur Krober at Dragonomics, a research firm based in Beijing. Not only does China lack the economic and political track record required to underpin a reserve currency, but its currency is not fully convertible. China would need to scrap capital controls so foreigners could invest in yuan assets and then freely repatriate their capital and income, but the government is wary of moving too quickly. A reserve currency also requires a deep and liquid bond market, free from government interference. This, says Mr Krober, implies a big retreat from China’s state-led model of credit allocation.

Even if China immediately scrapped capital controls the yuan would be unlikely to challenge the dollar as a reserve currency for years. The dollar did not replace sterling until half a century after America’s economy had overtaken Britain’s. America’s GDP is around three times as big as China’s, and its total trade is still larger.

Both the SDR plan and measures to internationalise the yuan also seem to assume that China’s problem is simply that too many of its reserves are in dollars. But China’s real problem is that it is running a persistent current-account surplus; in order to keep the yuan closely tied to the dollar it has to keep buying more dollar assets. If China really wants to reduce its exposure to the greenback it must allow the yuan to rise. It would incur a loss on its existing reserves but stem future losses. But so long as China maintains its current exchange-rate policy, it is, ironically, helping keep the dollar dominant.

Attached Images

 

xinhui

Same story.




China’s $2 Trillion Reserves Keep U.S. Stimulus Program Afloat
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By Bloomberg News

July 16 (Bloomberg) -- China’s foreign-exchange reserves are surging again, helping the Obama administration sell unprecedented amounts of debt as it seeks to drag the world’s biggest economy out of a recession.

Stockpiles of currency rose by a record $178 billion in the second quarter to top $2 trillion for the first time, the People’s Bank of China said yesterday. The amount is close to two-thirds the size of China’s economy and the equivalent of Italy’s gross domestic product in 2006.

The cash holdings are growing as the central bank sells its currency, the yuan, to prevent an appreciation that would make the country’s exports more expensive. The yuan sales mean for all the calls by China and other emerging markets for an alternative to the dollar as the world’s reserve currency, it has little choice but to keep buying U.S. government assets.

“People are talking about whether the Chinese may actually one day dump the dollar and Treasuries because of the problem in the U.S., but they are missing the point,” said Stephen Jen, head of macroeconomics and currencies in London at BlueGold Capital LLP, which manages $1.1 billion. “The reserves are so big because China needs to keep the exchange rate stable for its exports. Therefore, they have to keep buying dollar assets.”

The need to temper gains in its currency led China, the biggest overseas holder of U.S. Treasuries, to more than double its holdings of U.S. government notes and bonds in three years to $763.5 billion in April, according to U.S. Treasury data. The amount was equivalent to 38 percent of its reserves at the time.

Stimulus Spending

President Barack Obama’s administration is seeking to sell a record amount of debt to pay for measures to revive the U.S. economy. New York-based Goldman Sachs Group Inc. estimates that government borrowing may total $3.25 trillion in the year ending Sept. 30, almost four times the $892 billion in 2008, to finance the budget deficit.

“China’s reserves will allow the U.S. to run a higher fiscal deficit than other nations,” said Bilal Hafeez, the London-based global head of currency strategy at Deutsche Bank AG, the world’s biggest foreign-exchange trader. “Their rhetoric suggests they do want to diversify their reserves but the data suggests they are doing it in a measured way. There is no dumping dollars.”

The reluctance to let the yuan appreciate when the world is mired in the deepest recession in six decades means that China will keep accumulating U.S. debt, even if the amount of its purchases declines, according to economists at RGE Monitor, a New York-based research firm headed by economist Nouriel Roubini.

“Despite China’s concerns about the value of its large stock of U.S. assets, reserve diversification will continue to be difficult,” the RGE economists wrote in a report published yesterday.

Cash Surge

China’s reserves have increased by almost 14 times this decade as exports generated a trade surplus that pumped in cash. Capital Economics Ltd., a London-based consultancy, estimates that exports will generate 30 percent of China’s growth this year.

Win Thin, a currency strategist at Brown Brothers Harriman & Co., said investors have also recently pushed cash into emerging markets such as China, amid signs that their economies will recover more quickly than those of developed nations.

Such investment inflows mean that “policy makers bought dollars and sold local currency in order to prevent currency appreciation,” Thin said in a report yesterday. He predicted that China will continue intervening to keep the yuan trading at about 6.83 per dollar through the end of this year.

Yuan’s Stability

The yuan’s value has barely changed in the past year, following a 21 percent appreciation in the three years after China scrapped its dollar peg in July 2005. The demand for dollars conflicts with China’s recent calls for the world to consider drawing away from the greenback as its sole reserve currency.

“As the Chinese were becoming more vocal in regard to the need to move away from the U.S. dollar, they were in actual fact buying more dollars than ever,” said Derek Halpenny, European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd.

People’s Bank of China Governor Zhou Xiaochuan urged the International Monetary Fund in March to move toward creating a “super-sovereign reserve currency” to eventually replace the dollar. Premier Wen Jiabao said the same month that he was “worried” the dollar would weaken.

Speaking to Al-Arabiya television yesterday, U.S. Treasury Secretary Timothy Geithner expressed confidence that the dollar “will remain the principal reserve currency.”

Dollar Dominance

The dollar’s share of global foreign-exchange reserves increased to 65 percent in the first three months of this year, the most since 2007, according to the International Monetary Fund.

China is trying to reduce its reliance on the U.S. currency in other ways. It signed 650 billion yuan ($95 billion) of currency swaps this year with nations from Argentina to Belarus and is encouraging trading partners to use the yuan to settle cross-border trade.

The country’s top currency regulator this week relaxed curbs on overseas investment by local businesses, allowing more funds to flow abroad starting Aug. 1.

The 21.4 percent decline in net exports in June from a year earlier means “the yuan is stuck in cement until the middle of next year at least,” said Stephen Green, the head of China research at Standard Chartered Bank in Shanghai.

“The reserves will continue to pile up,” said Zhu Baoliang, chief economist of China’s State Information Center, an affiliate of the National Development and Reform Commission, the nation’s top economic planning agency. “Over the short term, there is not much that China can do but continue to buy U.S. Treasuries while hoping that the U.S. economy can recover as soon as possible so that China’s investment won’t suffer too much loss.”

--Kevin Hamlin, Li Yanping, Simon Kennedy. Editors: Brenda Batten, Daniel Moss

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net
China?s $2 Trillion Reserves Keep U.S. Stimulus Program Afloat - Bloomberg.com

VietPhuong

xinhui, did you miss these?

http://www.nytimes.com/2009/04/03/op...03krugman.html

FT.com / China - China stuck in ?dollar trap?

Officer of Engineers

He may have missed the particlular article but the gist of what's happening has been posted by Xinhui.

__________________
Chimo

VietPhuong

Ah, let him answer. He doesn't need your support. Last time he asked me why I called China's reserve "quick sand". Today I could not sleep even with the help of half bottle of Jim Beam and I am in the mood of an argument. These articles don't really support my point of view but they provide some funny ideas about current situation of China's reserve.

I am wondering what will happen to China's export if "Yuan will became on by default".

Officer of Engineers

Andy, have fun.

xinhui

Look at post number 55 on this thread.

China "worried" about US Treasury holdings



04-03-2009, 19:42 PM #55 (permalink)
xinhui
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Latest from Krugman of NYT, he is also on the cover of Newsweek. He is still singing the same song about not enough.



Op-Ed Columnist
China’s Dollar Trap

xinhui

VP,
Those two articles were written 3 months ago, which is like 3 years in econ world.

Krugman used the Yuan to support his argument that Obama's stimulus package was enough, basically saying the Chinese economy will drag US down due to the shutdown of export. How is China's economy today? How is the US economy today?

6 months ago, China pushed somewhere about 500 billion of currency swap with ASEAN, Korea, Japan, and other nations but it has completely stopped the currency swap deals 2 months ago, it is a clean sign the worst is now over. But, they still want to address the "dollar" issue in a long term basis and the switched to the SDR with helps from the Russians and the Indians.

My point -- Since the value of the Yuan is so close linked to the "dollar" today, Yuan will became "quick sand" only when the dollar reach the "quick sand" status and I don't see that from happening. There is no way in hack that Obama can push a 2nd stimulus package now. (which is a good thing)



As a side note, the two articles you posted are "OpEd" not reports.

xinhui

As a side note, this is what I like:
Isle of Jura Scotch Welcome to Jura
and Russian standard vodka

xinhui

VP, I purposely left the above two open-ended questions for you to research on. I forward to your rebuttal.