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The Chinese economy is not immune to whatever craziness is going on around the world. They hold such a large amount of US treasury bonds that the gridlock and political irresponsibility in Washington is leading to some fundamental policy changes regarding their reserve holdings. The People’s Bank of China owns about $1.1 trillion of US Treasury bonds out of the $1.5-trillion treasury bonds or so of foreign treasuries that it holds amid China’s total reserves of about $3.2 trillion.
It is not therefore surprising then that China is among those most concerned by Standard & Poor’s recent downgrade of the United States’ AAA credit rating. It was sufficiently concerned to publicly chastise the US for its irresponsibility!
“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” reported the Xinhua news agency.
BEIJING, Aug. 10 (Xinhua) — China Wednesday reported faster than expected growth in exports, imports and trade surplus in July, but analysts said the picture would become worse in the coming months amid a faltering global economy.
The trade surplus rose sharply to a record high of 31.48 billion U.S. dollars in July from June’s 22.27 billion U.S. dollars and the 28.7 million U.S. dollars in the same period a year ago, the General Administration of Customs (GAC) said on its website.
July exports rose 20.4 percent year-on-year to reach 175.128 billion U.S. dollars, a record monthly high compared with 17.9 percent in June. Imports quickened from June’s 19.3 percent to 22.9 percent to 143.64 billion U.S. dollars.
The robust readings suggests both China’s competitiveness in exports and domestic demand are in relatively good shape, Bank of America-Merrill Lynch economist Lu Ting said in an email to clients.
Exports to the EU and Japan rose to 22.3 percent and 27.2 percent year-on-year in July from 11.4 percent and 20 percent in June.
And exports to the United States expanded 9.5 percent, down slightly from 9.8 percent in June, but down significantly from 13.3 percent in the second quarter and 21.4 percent in the first quarter, which indicated weakness in the U.S. economy has been weighing on its imports from China, according to Lu. ….
On Wednesday morning, yuan hit a record high of 6.4167 against the U.S. dollar.
US politicians in the Administration and those grand-standing in Congress will need to get their act in order if they are to avoid the day when the Chinese are no longer around to buy their debt. As it is, China is now engaged in diversifying its foreign reserves away from US dollars to other currencies and even other asset classes and is under severe internal pressure to accelerate this diversification.
The k2p blog 