China taking over

... on the down-low.

Five years ago, I wrote that China would tire of blowing all its trade income on depreciating Treasuries and start buying real assets like businesses and real estate.

After the protectionist outcry over CNOOC buying Unocal and Dubai Ports buying P&O, China laid low. But now the L.A. Times reports China's investments in U.S. up sharply.
By recycling much of its dollar trove over the years back to the United States with the purchase of U.S. government debt, China has in effect helped Washington finance its deficits.

Now, Beijing is branching out. The country's direct investments overseas rose 6.5% in 2009 to $43.3 billion -- despite a global slump in such investments -- and could jump to $60 billion this year, Chinese state media reported last week.

Formal estimates of Chinese investments in the U.S. last year, excluding bond purchases, range from $3.9 billion -- a figure put out by New York research firm Dealogic -- to $6.4 billion, a number that comes from Derek Scissors, a Heritage Foundation research fellow who tracks China's global transactions.


The strategy also seeks higher earnings from Beijing's pile of assets denominated in foreign currencies, which is estimated at $2.5 trillion and mostly held in low-interest U.S. government securities and other low-risk, dollar-denominated investments. Chinese officials worry that a weakening dollar will erode the value of these holdings.

A sign that Beijing is acting on that concern came last week when the U.S. government reported that Chinese holdings of Treasury securities slid to $894.8 billion in December, down 3.7% from November and the lowest level since May.

It took them long enough, but it looks like China is finally getting out of Timmy the Tax Cheat Treasury bonds and Zimbabwe Ben funny money. China should be buying stocks, commodities, real estate -- anything but Treasuries. And it looks like they are starting to do exactly that.


B-Daddy said...

You know this is good news for our country. The Chinese sell us stuff we want, then they take the depreciating dollars they collect and invest it in businesses that in turn employ Americans. Our country was built with foreign direct investment, the whole cattle industry with Scottish money in the 1870's for example. Our nation is much better off with Chinese money invested in businesses rather than Treasuries.

W.C. Varones said...

I think that depends what kind of things they're buying.

If they fund start-up firms in new technologies, the benefit is obvious. But if they are just buying up natural resources, real estate, and old cash cow companies, it's hard to see that being a good thing for us.

FrackWit said...

Better go long on Rosetta Stone, seeing as Americans are going to need to bone up on Mandarin to prepare for the future.

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