Re: The Long March From Yenan to Barclays
On Jul 25, 2007, at 3:07 PM, bhandari@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