One of the more interesting commentators out there is Ambrose Evans-Pritchard . He writes for the Telegraph in the UK. Today he has couple of interesting posts up that concern China ... and the US.
The money quote:
Beijing aims to run down its portfolio of US debt as soon as safely possible.
"The incremental parts of our of our foreign reserve holdings should be invested in physical assets," said Li Daokui at the World Economic Forum in the very rainy city of Dalian – former Port Arthur from Russian colonial days.
"We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way."
"Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries," he said.
The two posts by AEP are:
http://blogs.telegraph.co.uk/...
http://www.telegraph.co.uk/...
Both are well worth a read.
Interesting ... maybe even stunning.
It looks like China is a bit fed up with the US approach to debasing the the dollar (by printing more of it) and has decided that enough is enough.
The Chinese are clearly vexed with Washington, viewing the Fed's QE as a stealth default on US debt. Mr Li came close to calling America a basket case, saying the picture is far worse than when Ronald Reagan and Margaret Thatcher took over in the early 1980s.
Whereas China had indicated previously that it would invest new FX proceeds (that thanks to a huge trade surplus, roll in at about $200 billion a quarter) in other areas - after all who do you think is trying to help bail out Europe - this recent statement implies that China is looking at actually selling some of its US Treasuries ... and buying "physical assets" (real estate, gold, stocks).
Should China decide to sell some of its US Treasury holdings (estimated as as much as $2 trillion) the impact on US rates would be devastating (rates would rise steeply without massive Fed printing of more money to buy up the now unwanted bonds).
The other side of the equation though is just as interesting. What if China wanted to buy into Apple, Boeing and Intel. Would the US object? It is not an impossible idea. The entire market cap of Boeing is about $50 billion and Intel about $110 billion - so China could buy the 2 companies for what it takes in in excess FX in less than 3 months. Apple with a market cap of $360 billion would take a bit longer, but would only take about 15% of China's US reserves.
Of course all is also not well in China - who as AEP correctly points out has amassed its horde of FX through its mercantilist economic policies (pegging its exchange rate for one). The focus on exports and "investment" has led to an economy that is dangerously unbalanced and vulnerable to a global slowdown.
A huge expansion in credit occurred without a lot of concern for whether or how the money lent will be able to be paid back. The emphasis has been on growth at all costs (to preserve social stability) ... and that means a lot of "questionable" projects have been approved and funded.
Mrs Chu said China's credit boom does not match Iceland – which saw credit to GDP rise from 130pc to 440pc over five years – but is significantly worse than the jump in the US before the sub-prime crisis, or even in Japan before the Nikkei bubble burst.
"Such a rapid run-up in leverage is a sign that the incremental return on credit has declined, meaning that borrowers' ability to repay is not keeping pace," said Fitch. The agency fears that non-performing loans could rise from 2pc of GDP last year to up to 30pc.
So on the one hand we have a China looking to take over the world and on the other we have a China balancing very close to the edge.
Interesting times to say the least.