China's Dilemma?

"With Blackstone's shares down 84 percent since flotation, CIC's new executives have become the target of furious attacks by bloggers who think China was conned. 'They are worse than wartime traitors,' says one recent chatroom posting. 'Blind worship of the US by so-called "experts",' complains another. ... But within China, [dollar reserves] are increasingly seen by the public and even some policymakers as something of an albatross--a huge pool of resources not being used at home that will plunge in value if the US dollar collapses. Why, people ask, should such a relatively poor country bankroll such a rich one. Even at the elite level, the sense of frustration occasionally bubbles over. ... As China's economy slows sharply, the debate on how to manage its reserves is intensifying. ... But the consensus behind recycling foreign currency into US government securities is coming under attack. ... 'There should be more give and take; some sort of guarantee that our interests will be defended,' sas Yu Yongding, a leading economist at the Chinese Academy of Social Sciences. Given the vital role that China has played in financing US deficits, Washington 'should at least be a little nicer,' he says. ... Last year, when its economy was under extreme stress, China lent the US more than $400bn--the equivalent to more than 10 per cent of Chinese gross domestic product. ... Founded in 2007, CIC controls assets equivalent to only about 10 per cent of the total reserves, yet it has become a lightning rod for criticism. Not only has its Blackstone investment gone sour, but CIC also invested $5bn in Morgan Stanley before the bank's shares slumped. CIC also had money in Reserve Primary Fund, the US money market fund which froze redemptions after the collapse of Lehman Brothers. A European banker who has been advising CIC on its overseas strategy says: 'This is a completely unique situation for Chinese bureaucrats to face--having their every decision debated, analysed and often attacked in the media and on the internet. I get the feeling that they are all shell-shocked.' Almost every week, a new proposal is launched to find a better way of investing the money. State media reported this week that a fund might be set up using reserves to back overseas investments by oil companies. Such ideas follow a flurry of recent natural-resources deals involving Chinese companies--most notably Chinalco's planned investment in Rio Tinto. ... Yet, if China has few options but to keep buying US Treasuries, it can still try to turn its investments into some sort of leverage. ... Chinese policymakers are also becoming increasingly critical of US financial policies", my emphasis, Goeff Dyer at the FT, 23 February 2009.

Bring back the worker-student alliance (WSA). But this time an international WSA to fight banker oppression of the masses. I am in solidarity with the Chinese peasants. Many decades ago Brazil's finance minster said something to the effect, "If I owe the banks $1 million and I can't pay, I am lost. If I owe the banks $1 billion and I can't pay, they are lost". China should figure out how to get something of value for its $1.9 trillion in foreign exchange reserves. China is now buying natural resource companies, my 8 March 2009 post. See also my 13 August 2007 and 20 October 2008 posts: http://skepticaltexascpa.blogspot.com/2007/08/private-equitys-bubble.html and http://skepticaltexascpa.blogspot.com/2008/10/agents-of-influence.html.