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foreign20debtThe first quarter of this year, China’s foreign reserves went up by only $7.7 billion. Sound like enough? Last year for the same period it was $153.9 billion. Reasons for this are numerous.

  • Chinese investors are becoming wary of the safety of their foreign bond holdings.
  • Exports from China are decreasing compared to imports, so less demand for the Yuan.
  • Capital flight from China may be slowing.
  • Non-Chinese investors are buying more US debt, keeping returns low.
  • US consumers are saving more money, reducing the need for Chinese savings.

One Chinese economist was interviewed, and he was asked about the balance of financial power between China and the US. He replied–

“I think it’s mainly in favor of the United States.” (As John Maynard Keynes said) “If you owe your bank manager a thousand pounds, you are at his mercy. If you owe him a million pounds, he is at your mercy.”

Not sure I believe him, but I like the quote.


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