Will the USA's economy crash?, China begins to stop buying USA assets Options

[millersdude]

China hints at shift from greenback
Geoff Dyer, Shanghai and Andrew Balls, Washington
January 07, 2006

http://www.theaustralian.news.com.au/commo...5E36375,00.html

CHINA has indicated it could begin to diversify its rapidly growing foreign exchange reserves away from the US dollar and government bonds - a potential shift with significant implications for global financial and commodity markets.

Economists estimate that more than 70 per cent of the reserves are invested in US dollar assets, which has helped to sustain the recent large US deficits. If China were to stop acquiring such a large proportion of dollars with its reserves - currently accumulating at about $US15 billion ($20 billion) a month - it could put heavy downward pressure on the greenback.

In a brief statement on its website, the Government's foreign exchange regulator said one of its targets for 2006 was to "improve the operation and management of foreign exchange reserves and to actively explore more effective ways to utilise reserve assets".

It went on: "(The objective is) to improve the currency structure and asset structure of our foreign exchange reserves, and to continue to expand the investment area of reserves.

"We want to ensure that the use of foreign exchange reserves supports a national strategy, an open economy and the macro-economic adjustment."

The announcement came from the State Administration of Foreign Exchange (SAFE).

It gave no more details about whether this meant a big shift in the investment strategy for Chinese reserves, which according to local press reports reached almost $US800 billion at the end of last year and are expected by economists to near $US1000 billion this year.

The regulator also said it would end quotas on the amount of foreign currency Chinese companies could acquire to invest in overseas assets, a decision that removes a bureaucratic hurdle facing companies planning to make international acquisitions.

The statement comes at a time of growing debate in China on how the reserves are invested. Some economists have called on Beijing to use the funds to finance infrastructure investment and clean up state-owned companies, or to invest in higher-yielding assets rather than financing US borrowing.

However, according to Stephen Green, economist for Standard Chartered in Shanghai, although the language was "vague", Thursday's statement was the first time SAFE had publicly indicated a shift away from dollar assets.

"It is a subtle but clear signal that they are interested in moving away from the US dollar into other currencies, and are interested in setting up some kind of strategic commodity fund, maybe just for oil, but maybe for other commodities," he said. The Group of Seven leading industrialised economies has repeatedly called for an adjustment in global trade imbalances, including a rise in the yuan.

The US has expressed frustration that China has not allowed its currency to rise significantly after last July's 2 per cent revaluation.

That saw China move from a US dollar peg to managing its currency against a basket of currencies, potentially allowing the yuan to rise against the dollar.

US Treasury Secretary John Snow, speaking earlier on Thursday, repeated his call for China to allow the yuan to rise against the dollar.

"The trade deficit is influenced by lots of things - differential growth rates, differential savings rates and investment rates and so on. But clearly, getting the (Chinese currency) more appropriately valued will be helpful to the global adjustment process," Mr Snow said.

However, some economists believe it would be a mistake for China to shift its reserves into domestic investment or other asset classes.

[toronto_chinese]

hope, it won't crash for a long time to come since China's economy is still very dependent on exports.

[darkvelocities]

correct.
usa economy will remain strong... for a few decades, but likely no more.

china is maintaining a modern form of mercantilism, as all countries know its better to export more than import. as china continues to export more and more advanced products, it will have a larger market to sell to and less towards the usa. with its massive workforce, it manufacture basically more than any other country.

china is trying to emulate the favourable balance of trade that they had years ago when europe wanted things like silk and porcelain, but europe and nothing good to offer in return... that is until the brits got half of china hooked on opium...

[flipcombatmedic]

correct.
usa economy will remain strong... for a few decades, but likely no more.

china is maintaining a modern form of mercantilism, as all countries know its better to export more than import. as china continues to export more and more advanced products, it will have a larger market to sell to and less towards the usa. with its massive workforce, it manufacture basically more than any other country.

china is trying to emulate the favourable balance of trade that they had years ago when europe wanted things like silk and porcelain, but europe and nothing good to offer in return... that is until the brits got half of china hooked on opium...

well you see that's the thing. if us economy crash, so will china's. even if china's economy is not attached to the us, but everybody else is, and china is attached to those there is no way china will not be affected.

[StephenDedalusFr...]

The entire world's economy is connected now. Asia didn't get affected during the Great Depression when America's and Europe's economies were falling on hard times.

This wouldn't be the case if America crashes again. Who will bring FDI to China then??

Stop this wishful thinking now.

[easy_layup]

well I hate the US government very much (I have nothing against the people)...
but yes not only the chinese but the world economy does largely depend on USA, and US's economy also depends on china...
I just hope USA's economy will remain at the current condition for another 20 years untill China catches up...and once China becomes less dependent on USA (though that would be very hard), USA can go and screw itself (IMG:http://www.asiafinest.com/forum/style_emoticons/default/cool30.gif)

[StephenDedalusFr...]

why can't all countries be prosperous and happy???

Why do you want certain countries to fail?

[Suijen]

why can't all countries be prosperous and happy???

Why do you want certain countries to fail?

China doesn't want anyone to fail right now. Currently, it's future depends on moolah coming in. Unfortunately (or fortunately) money is the solution to China's problems.



But secretly, I wish Japan would hit the dirt nap.

[StephenDedalusFr...]

^^^

Easy Layup does.

I dunno why. Why can't both countries be sucessful and rich and help each other economically??

Americans can travel in China, Chinese can travel in the US, both countries can trade, share culture and ideas.

Same with China and Japan. Why would you wish harm on the millions of Japanese children, elderly, women who had nothing to do with Japan's invasion of China??

[Mid-Night_Sun]

China doesn't want anyone to fail right now.  Currently, it's future depends on moolah coming in.  Unfortunately (or fortunately) money is the solution to China's problems.
But secretly, I wish Japan would hit the dirt nap. 

LOL...secretly?

[Suijen]

LOL...secretly?

It's not much of a secret to the people who know me here though.

Same with China and Japan.  Why would you wish harm on the millions of Japanese children, elderly, women who had nothing to do with Japan's invasion of China??

Don't like them, and there are still some WWII veterans alive in Japan. I hope pianos fall on them.

This post has been edited by Suijen: Jan 8 2006, 02:50 PM

[StephenDedalusFr...]

pfft there could be Vietnamese, Tibetans, Uighurs, Hmongs wishing the same thing to your family because of past wrongs China inflicted onto them.

[darkvelocities]

true, but nothing (maybe hitler's holocaust or stalin's massacres) compare to the japanese atrocities in ww2. i hold no ill will to the innocent japanesea, but i swear i hope each and every one of those veterans who had anything to do with those crimes die. die slowly and horriby.

rape of nanjing. over 300,000 innocent deaths in cruel ways, which japan played down to 100,000.

i actually had family who was there.

[Suijen]

pfft there could be Vietnamese, Tibetans, Uighurs, Hmongs wishing the same thing to your family because of past wrongs China inflicted onto them.

I know that. I'm not going to bother persuading them otherwise.