China goes shopping

And so it begins:
Beijing will use its foreign exchange reserves, the largest in the world, to support and accelerate overseas expansion and acquisitions by Chinese companies, Wen Jiabao, the country’s premier, said in comments published on Tuesday.

“We should hasten the implementation of our ‘going out’ strategy and combine the utilisation of foreign exchange reserves with the ‘going out’ of our enterprises,” he told Chinese diplomats late on Monday.

Mr Wen said Beijing also wanted Chinese companies to increase its share of global exports.

The “going out” strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state-owned industrial groups such as PetroChina, Chinalco, China Telecom and Bank of China.


Mr Wen did not elaborate on how much of the $2,132bn of reserves would be channelled to Chinese enterprises but Mr Qu said this was part of a strategy to reduce its reliance on the US dollar as a reserve currency.

“This is reserve diversification in a broader sense. Instead of accumulating foreign exchange reserves and short-term financial assets, the government wants the nation to accumulate more long-term corporate real assets.”

Translation: "No more Zimbabwe Ben dollars. We want real stuff."

I expected this to happen a long time ago. I wrote about this in 2005, so long ago that it counts more as "wrong" than as "early." But even a stopped Varones is right twice a decade:
Transfers of assets are a foreseeable result of huge trade imbalances. We are buying billions of dollars worth of goods from the Chinese, and they have to put those dollars somewhere. For the past several years, those dollars have gone largely into U.S. Treasury bonds.

Now the Chinese appear to be getting tired of measly 4% yields on a depreciating U.S. Dollar. Where else to invest? Sickly Europe? The real estate bubble, as the Japanese did to disastrous effect in the 1980's? No, the new target is U.S. equity. China's Lenovo recently bought IBM's PC business. Cnooc is trying to buy Unocal. Expect many more bids for U.S. companies, and expect the phenomenon to be very positive for the U.S. stock market.

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Happy Super Tuesday!