By September 2008, China had owned 585 billion U.S. dollars in U.S. government bonds, becoming the largest creditor of the world’s largest economy, according to the latest statistics from China’s Ministry of Finance. It bought new US national debts every month during 2008’s first three quarters. (news.xinhuanet.com)
For years, China has had a surplus of money, which its national bank gleans from its high export to import trade imbalance. It takes the dollars it makes from U.S. consumers and then needs a reliable place to invest them, and it has historically invested heavily in U.S. treasuries along with private U.S. assets.
But now many of China’s investments in the U.S. have gone awry, as they were screwed by Freddie Mac and Fanny Mae, and reckless derivative trading. Naturally, like most people in the world, they have lost some trust in the once supposedly rock solid U.S. economy.
I believe that Americans will keep buying Chinese goods for a long time – although maybe slightly less because people here are struggling. Nevertheless, at least 90 percent of the goods Americans take for granted in their daily lives are made in China. Read the book, A Year Without Made in China, (reviewed by Today’s Machining World) and this concept is clear.
China’s government should have plenty of money to invest overseas for years to come. The question is … has the U.S. economy gotten so bad that they will put a lot of it elsewhere. Personally I don’t think so.