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China's sitting on piles of money. Why won't it help?

 
 
Reply Fri 10 Oct, 2008 11:52 am
Posted on Friday, October 10, 2008
China's sitting on piles of money. Why won't it help?
By Tim Johnson | McClatchy Newspapers

BEIJING " China sits on a huge pile of money, and its policymakers crave global assets. So why doesn’t China spend a little and save the world from global financial meltdown?

Economists give a number of reasons why China prefers to sit on the sidelines of the global turmoil, focusing instead on protecting its economy and maintaining growth powered by consumers at home.

"In this type of global crisis, the best China can do is take care of itself,” said Qing Wang, chief economist on China for Morgan Stanley, a global banking firm. "Its role in the global economy is still quite small.”

An export powerhouse, China has amassed foreign reserves of $1.81 trillion, an unprecedented stock pile, and is awash in savings of its thrifty citizens. That war chest has drawn cries from other corners of the globe for China to help bail out the global financial system " a cry that has been resisted in China.

Economists said it is easy to overlook that China’s foreign reserves are already largely locked up " including some $1 trillion in U.S. government bonds.

"The money is already spent. . . . It’s not sitting there in cash,” Wang said.

Earlier this week, Premier Wen Jiabao suggested that the "biggest contribution" China could do to help the global crisis is to maintain "steady and fast growth."

China's economy grew at a blistering 11.9 percent in 2007, but the pace is slowing markedly. The International Monetary Fund forecasts China's economy will grow 9.7 percent in 2008. Several Wall Street firms forecast 2009 growth at around 8 percent, a significant slide.

The crisis has certainly buffeted China. Its stock exchange in Shanghai has followed the stomach-churning slides of major exchanges elsewhere, although to a milder degree than in Tokyo, which plunged 9.4 percent Friday, or Hong Kong, which sunk 8 percent. Shanghai’s major stock index fell only 2.8 percent, but it has lost two-thirds of its value in a year.

Still, some independent economists suggest that as China weans off its dependence on exports it should use its savings and begin scouring the globe for distressed foreign banks or big companies to buy at fire-sale prices. Or at least buy some more U.S. Treasury bonds in a sign of confidence in the global system.

Others preach caution.

“The financial markets are very sophisticated, and the Chinese players have less experience than elsewhere,” said Chen Zhao, an economist at Shanghai’s Fudan University. “Chinese players are cautious.”

China, after all, has learned painfully that it can lose. Last year, its sovereign wealth fund bought a $5 billion chunk of Morgan Stanley, only to see its investment drop in half, a story repeated with its investment in the Blackstone Group.

“We can’t evaluate American assets until the subprime lending crisis is over. We must wait for a time,” said Wang Songqi, chief editor of The Banker magazine.

“It’s not the bottom of the market yet,” Chen added.

There’s no reason for China to wade into buy distressed companies if others don’t have the nerve to do so either, several economists said.

Any attempt by China to purchase a large bank or other sensitive asset could raise howls on Capitol Hill, just as happened in 2005 when a China state offshore oil company bid on Unocal, then the ninth largest oil company in the world, said Andy Rothman, a Shanghai-based economist for CLSA Asia-Pacific.

“How would Congress respond if a Chinese Communist Party-owned bank were to make a bid for a major U.S. bank? You just have to go back a few years to see the reaction to CNOOC’s bid for Unocal.”

Rothman said China is on the right path of trying to stimulate domestic consumption in a nation with few social safety nets where most families save furiously to pay for education, health care and retirement. Chinese families save an average of 16 percent of their disposable income, he wrote in a research note this week.

In this year’s most important political meeting, Communist Party honchos are in a four-day plenary through the weekend to discuss rural reforms that could sustain economic growth, a pillar of the party’s legitimacy now that it has largely ditched socialist ideology.

The reforms are expected to “make it easier for farmers to lease or transfer the management rights of their land,” the China Daily said Friday. Under a collective ownership system in place for the past three decades, China’s 750 million rural dwellers manage land for 30-year periods through contracts with village or township bodies, but don’t own it outright.

Millions of farmers have been dispossessed in recent years by village and township chiefs eager to sell land to developers.

Last year, the party beefed up property rights of urban residents.

“If rural people could have this right equally, they could benefit equally from the urbanization process. This would decrease urban-rural inequality in China,” Chen said.
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Type: Discussion • Score: 0 • Views: 1,120 • Replies: 19
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dyslexia
 
  1  
Reply Fri 10 Oct, 2008 12:26 pm
@BumbleBeeBoogie,
what do you think china should be doing?
0 Replies
 
cicerone imposter
 
  1  
Reply Fri 10 Oct, 2008 12:59 pm
@BumbleBeeBoogie,
There are pros and cons to China's "pile of money." Most citizens in China who invested their money in stocks also lost a huge percentage of their savings. They are not immune to the world's financial crisis, and the majority of Chinese still live below poverty levels, while their environment becomes more polluted.

Isolation is never the answer - even for the Chinese.
hamburger
 
  1  
Reply Fri 10 Oct, 2008 02:21 pm
@cicerone imposter,
from bbb :

Quote:
China's sitting on piles of money


i'm sitting on "piles" too - how can i be of help ?
hbg
cicerone imposter
 
  1  
Reply Fri 10 Oct, 2008 02:26 pm
@hamburger,
Today's market news on Asia:

HONG KONG: Shares closed down 7.2 percent, dealers said.

The benchmark Hang Seng Index closed down 1,146.37 points at 14,796.87, its lowest closing figure since November 2005.

Turnover was 69.37 billion Hong Kong dollars (8.89 billion US).

All 42 companies that make up the Hang Seng Index ended the day lower.

Dealers were divided about whether the market has hit the bottom.

PetroChina and HSBC, which have been fund managers’ favorite stocks, fell sharply. The stocks accounted for nearly a quarter of the benchmark index’s decline. PetroChina ended down 5.8 percent at 6.00 dollars and HSBC shed 7 percent to 109.80.

Bank of Communications dropped 8.0 percent to 5.40 dollars and China Construction Bank tumbled 7.6 percent to 3.75, and ICBC.

Cheung Kong 8.1 percent lower at 67.50 dollars and Sun Hung Kai Properties down 11.6 percent at 58.50.
hamburger
 
  1  
Reply Fri 10 Oct, 2008 07:53 pm
@cicerone imposter,
if you want REAL MONEY , it's worth looking at the russian economy .
with their natural gas exports to europe , russia is sitting on a true "pile of money" .

http://en.rian.ru/business/20081010/117658372.html

Quote:
Russia's budget surplus at $96.7 billion in Jan-Sep 08
14:56 | 10/ 10/ 2008



MOSCOW, October 10 (RIA Novosti) - Russia's budget surplus has been estimated at 2.5 trillion rubles ($96.7 billion), or 8.1% of GDP, in the first nine months of 2008, the Finance Ministry said Friday.

Budget revenues totaled 7.151 trillion rubles ($275 billion) in January-September 2008. Expenditure stood at 4.630 trillion rubles ($178 billion) in the first nine months of the year.

The latest government forecast for 2008 puts federal budget revenues at 9.897 trillion rubles ($380.7 billion), expenses at 7.413 trillion rubles ($285.1 billion) and budget surplus at 2.484 trillion rubles ($95.54 billion).
cicerone imposter
 
  1  
Reply Fri 10 Oct, 2008 07:55 pm
@hamburger,
How do we buy into the Russian economy?
dyslexia
 
  1  
Reply Fri 10 Oct, 2008 08:34 pm
so where's BBB?
hamburger
 
  1  
Reply Fri 10 Oct, 2008 08:38 pm
@cicerone imposter,
c.i. :
wouldn't there be any mutual funds dealing in russian stocks ?
perhaps you can buy GAZPROM directly .

btw. picked this up on canadian news today . a russian national hockey league (financed by gazprom) is "buying" canadian and american hockey players !
the agent interviewed had left rusia some years ago toplay for a canadian team . he is now working for the russian team buying north-american players !
"money is no problem , gazprom pays handsomely " , he said .
there is a turn of events !
hbg
cicerone imposter
 
  1  
Reply Fri 10 Oct, 2008 08:46 pm
@hamburger,
There probably are, but all our investments are with Vanguard.
0 Replies
 
BumbleBeeBoogie
 
  1  
Reply Sat 11 Oct, 2008 08:38 am
@dyslexia,
Dys asked" Where is BBB?"

I took my two dogs to the groomer; was Dolly's first bath.

I went to the Comcast store to learn why I couldn't control the volumn on my new TV remote.

Went to the pet store to buy dog food and to buy Dolly a new collar; she and Maddy had chewed up her old one. Now I can put her new rabies tag on it.

Did a load of laundry at home.

Picked up my dogs from the groomer (a good friend). I took my dogs to the vet when the groomer discovered they have ear infections. They got a bunch of shots were due. Over $200 on my credit card.

Went to the drug store to buy Q-tips to apply ear medicine.

Drank a glass of vegetable juice while I talked to my friend thousands of miles away by phone for an hour when she was having a bad day trying to deal with her husband's dementia.

Then I talked by phone to my son who just got home from over a week in the hospital.

Had fun trying to get medicine in my dogs ears.

I unsuccessfull tried to program my new Comcast TV remote to control the volumn. My old remote died. I followed the directions, but must have goofed. Guess I will have to ask Dys to come over and fix it for me.

Then I nuked a frozen dinner and fell asleep in my recliner chair before I finished eating it. Later discovered my dogs had licked the plate clean.

Ate the left over popcorn from yesterday.

Discovered and disposed of two poop bombs on my carpet.

Went to bed.

Want to know anything else, Dys?

BBB
NickFun
 
  1  
Reply Sat 11 Oct, 2008 08:55 am
Maybe this will happen: http://www.unconfirmedsources.com/index.php?itemid=3622
0 Replies
 
CalamityJane
 
  1  
Reply Sat 11 Oct, 2008 09:04 am
@BumbleBeeBoogie,
Perhaps you should educate yourself before you post articles you run across
and assume the writer is correct.

Quote:
The top five foreign holders of Freddie and Fannie long-term debt are China, Japan, the Cayman Islands, Luxembourg, and Belgium. In total foreign investors hold over $1.3 trillion in these agency bonds, according to the U.S. Treasury's most recent "Report on Foreign Portfolio Holdings of U.S. Securities."


Here is an interesting read about the subject matter as well
http://www.slate.com/id/2199564/
BumbleBeeBoogie
 
  1  
Reply Sat 11 Oct, 2008 09:18 am
@CalamityJane,
I didn't assume anything about the article and don't always agree with the writer. I posted it because it was interesting.

BBB
0 Replies
 
cicerone imposter
 
  1  
Reply Sat 11 Oct, 2008 11:02 am
@CalamityJane,
CJ, That slate article is a gem. Thanks for sharing it.

Let me offer my .02c worth. That the value of most American assets have diminished by trillions which funded our borrowings to maintain our economy for the past decade, it essentially gave us those GDP growth for "free." All our debt has been reduced across the board, and the additions of printed US currency will further decrease our debt, because adding more money without any backing of products and services only guarantees inflation. But, hold it; most people are now barely eeking out a living, and buying food and fuel by stretching their budgets. Many are still facing loss of jobs and foreclosures. Inflation? I don't think so. Why? Have you seen what's happened to oil prices lately? The world demand for oil will continue to drop, and more products will be cheaper to produce and transport to destinations around the world.

It's a confusing world out there, and most will misjudge how it will effect our near term and long term future. Me included.
CalamityJane
 
  1  
Reply Sat 11 Oct, 2008 11:44 am
@cicerone imposter,
Cicerone, in essence it is a good concept: we outsource to China, India and other nations who give us cheap products and a competitive edge. They return the favor by heavily investing in the United States. The problem is, that most European and Asian banks are very conservative in their dealings, they are to an extend federally regulated, and any wrongdoing on their (banks) part would be criminally prosecuted according to the democratic-socialistic policies they follow.

Not so in the United States where capitalism has gone to the extreme of abolishing restrictions necessary to ensure financial security to foreign investors. I won't even talk about moral standards here in conjunction with the banking industry. Fact is, aside from the fiscal disaster, we have lost our credibility and reputation in the world, making us rather a liability as opposed to a lucrative source of investment.

In Germany, there is talks of government-seizing all banks (only a few aren't anyway) which means thougher requirements towards foreign investments, especially toward the U.S. Here is a good article in the German Spiegel (in english) http://www.spiegel.de/international/world/0,1518,581502,00.html
hawkeye10
 
  1  
Reply Sat 11 Oct, 2008 11:51 am
China likes to think of themselves as the oldest and historically the strongest global power. But their global power days were long long ago, in reality they are a very new power. As such they don't know how to handle global responsibilities. China is very provincial, they do what they think is in their own best interests, which tends to be warped by their myopic vision.

If the global community is waiting for the Chinese to save the day we are screwed.
0 Replies
 
cicerone imposter
 
  1  
Reply Sat 11 Oct, 2008 11:57 am
@CalamityJane,
One of the biggest weakness of our economy was when production continued to increase, but the workers didn't benefit; it just gave the CEO's and officers more pay and benefits. If they had shared the increase in sales and profit with the workers, they would have benefited in many ways including a) more savings rather than spending from their retirement savings, b) kept up with inflation to maintain their standard of living, c) increase the tax base and revenue for all levels of government, and d) decrease the consumer debt.

I've voted against many board of directors when we held stock in individual companies, but that was before I retired over 10 years ago. I saw the problems back then, but I was only one voice with a limited number of shares.
hawkeye10
 
  1  
Reply Sat 11 Oct, 2008 12:06 pm
@cicerone imposter,
as proven by the fact that for year US productivity has improved, but the average American family has suffered both a decline in income and increased stress caused by increased time devoted to work. The average citizen has not been the one rewarded.
0 Replies
 
CalamityJane
 
  1  
Reply Sat 11 Oct, 2008 12:16 pm
@cicerone imposter,
I couldn't agree more, cicerone. Now having said that, in a shifting global economy where it is smarter to outsource to cheap labor countries, we should
have invested more in our own technology, research and education - something
other countries lack.

Instead, government funding was cut drastically, especially in medical research
and education. Where we once were leaders in the world, today, not even Chinese researchers want to come to the U.S.
0 Replies
 
 

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