The Trade Surplus & The Trillion Dollar Question

Related entries: Economy, General, Investment, News, Trading

As China records yet another big trade surplus – The Times reports that the figure for January was $15.9 billion, and should pass US$200 billion for the year – international political pressure on the RMB continues to mount. Adding to voices from the US, G7 ministers have also been making themselves heard. The BBC reports:

    “China, which recently leapfrogged Britain to become the world’s fourth largest economy and was at talks despite not being a G7 member, said it wanted the yuan to be more flexible.

    Beijing has been accused of undervaluing its currency, making Chinese exports artificially competitive on the global market.

    ‘In emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur,’ the G7 said in a communique at the close of the meeting on Saturday.

    Responding, China’s finance minister, Jin Renqing, said his country would ‘continue to strengthen macroeconomic adjustments’”.

As previously noted, China is not going to jump on anyone’s command, but steps are being taken to control growth and slowly appreciate the RMB. But what to do with the trillion dollars of foreign exchange that China holds? One idea is to spend it overseas, and Asia Times (h/t China Digital Times) has reported on a planned US$200 billion fund – the National Foreign Exchange Investment Company:

    “The Chinese government is taking action to implement a new policy of diversifying the disposal of the country’s over US$1 trillion foreign exchange reserves which was initiated by the Central Conference on Financial Affairs three weeks ago.

    The Ministry of Finance (MOF) is planning to issue yuan-denominated bonds to raise funds that will be used to “buy out” as much as $200 billion from the country’s foreign reserve pool.

    To take funds out of the foreign exchange reserves the government must pay the equivalent amount in yuan to balance the books.

    At the current exchange rate, the total amount of yuan bonds to be issued by the MOF will be more than 1.5 trillion yuan. The ministry plans to sell the bonds to commercial banks, according to China Business News, a leading business newspaper based in Shanghai.

    The $200 billion “bought out” from the foreign exchange reserves will then be injected into a new company to be set up this year to handle overseas investment with foreign reserves”.

The State Administration of Foreign Exchange (SAFE) reported to be planning an overseas investment company to focus on “low-risk, long-term Treasury bonds and housing mortgage bonds denominated by the US dollar and the euro”.

Whatever China wants to buy with its currency reserves (African friendship? Resources? Technology?) it is likely to have a political as well as economic impact. And it is equally unlikely that China will the be the only country “re-evaluating” the role of foreign investment…

See news sources:

One Response to “The Trade Surplus & The Trillion Dollar Question”

  1. Archive » What To Do With a Trillion Dollars? Spend It! | China Business Blog Says:

    […] Dollars? Spend It! Related entries: General, Investment, News, Economy As previously flagged, the Chinese government is launching a state investment agency, based on […]

Leave a Reply

You must be logged in to post a comment.