On Jul 25, 2007, at 3:07 PM, bhandari at berkeley.edu wrote:
> US consumes more than exports, has balance of payment problems.
> Borrows to
> finance the deficit, and Chinese investors in effect convert US
> debts into
> US financial assets.
>
> But you say the Chinese can't or are not going convert these
> financial
> assets into purchases or licsening of pharmaceutics, aircraft,
> software,
> speciality and logic chips, medical equipment, etc from American
> multinationals.
China would like to develop these industries for themselves, so any serious purchases will come with demands for local manufacturing and technology transfer. Software is just too small a business to make a dent in the current account. A lot of the rest of the stuff can be sourced elsewhere. China is growing very rapidly and investing 40% of GDP. If they're not buying now, how's that going to change much in the future?
> You may well be right but then this question: Why then the appetite
> for US
> financial assets?
A lot of the reserve accumulation in Asia is a form of self-insurance against a rerun of the 1997 financial crisis. The IMF and the Anglo- American punditocracy don't like that, but who cares what they think? And where else can you park a trillion in financial assets more easily than in the U.S. markets (though I just read today that China ain't gonna be buying any more mortgage-backed securities)?
Doug