Thursday, April 12, 2007

China's Reserves

China accumulated more that $300 billion in additional foreign reserves last year:
BEIJING - China's foreign reserves, already the world's largest, have risen past $1.2 trillion, a state news agency said Thursday, amid surging trade and plans to create a multibillion-dollar company to invest some of the stockpile.

The figure, as of the end of March, represented a 37.4 percent rise over the same period last year, the Xinhua News Agency said, citing the central bank.

China's reserves have risen rapidly as huge trade surpluses and foreign investment force Beijing to drain billions of dollars from the economy every month through bond sales to hold down pressure for prices to rise. The money is stockpiled in U.S. Treasury bonds and other foreign assets.

The government announced last month it will create a multibillion-dollar company to invest a portion of the reserves in hopes of making more profitable use of the money.
That's an additional $300 billion in one year. Needless to say, that's a lot of money. It will be interesting to see what China comes up with as a "more profitable" way to invest those spare dollars. And it will be interesting to see if that means that China will demand fewer US government and agency bonds.

Note as well that even if most of that money went into buying US dollar assets (some small portion probably went toward buying European, Japanese, and other currencies), today's figures from China still only represent a relatively small portion of the US's international borrowing needs. Other countries around the world must have lent an additional $600 billion to the US last year.

It's a good reminder that the world's international financial imbalances are a US-China problem... but are not only a US-China problem.

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