Monday, June 1, 2009
China, Dollars and Oil
"An unusual bond from China National Petroleum Corp. may mark a fresh direction for corporate fund raising in China. The state-owned company, which controls PetroChina Co., this week became the first nonfinancial firm to sell a bond denonimated in US dollars in China. ... A US dollar bond offers China's cash-rich corporate and individual savers a place to invest some of their US dollar deposits, while offering local companies a new source of capital to fund acquisitions abroad, away from the scrutiny of international credit markets and the risk of abrupt changes in global currency markets. ... US dollar bonds from Chinese firms can soak up dollars that might otherwise be exchanged for yuan, a process that has sustained upward pressure on the Chinese currency", WSJ, 15 May 2009.
This makes sense to me. By selling US dollar denominated bonds, the Chinese government is in effect short-selling the dollar and not incurring Washington's wrath. For now.