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China owns America, according to the Tea Party. Although the recent rumor that China possesses a larger percentage of government bonds than the American government itself has been busted, the idea has sparked debate over the future of the global financial market.
China, the 3rd largest country (by landmass) with the second leading economy in the world, does in fact own the largest single share of foreign-owned American Treasury securities (36 percent), some $1.16 trillion. That’s 16 percent of total U.S. debt.
Back in 2006, it was calculated that China added $30 million to its reserves of foreign currencies every hour (Bonner, Bill: “China’s Dollar Reserves, America’s Debt”). China’s pool of reserves had topped $1 trillion, approximately 20 percent of all dollars worldwide. This immense cache is the result of a large current-account surplus, significant inward foreign direct investment, and big inflows of speculative capital.
Though this influx of foreign currency would theoretically have dramatically increased the worth of the Yuan, the Chinese government instead resisted this increase, keeping labor and exports dirt cheap for foreign investors.Thus, China has expressed concern over the security of its vast holdings.
Realistically, any nation should control assets denominated by several currencies, commodities, and direct overseas investments in order to avoid the sharp depreciation of any one type of asset. “We hope the U.S. government concretely takes responsible policy measures to increase the confidence of international financial markets and respects and safeguards investors’ interests,” the State Administration of Foreign Exchange said in a statement.
In an e-mail in August, Yu Yongding, a former advisor to China’s central bank, remarked that the U.S. Treasuries fail to provide safety or liquidity in managing China’s foreign-exchange reserves, worth $2.45 trillion. He went further to say that, in order to help lessen demand for the securities, China needs to curb the growth of its foreign reserves by pulling out of the currency market.
As a result, in the 12 month period ending in July, China has cut its holdings by about to 10 percent to $846.7 billion, according to the U.S. Treasury Department. Additionally, China and Russia came to an agreement in 2010 following the global recession.
In the agreement, they would use their own currencies for bilateral trade rather the commonly used American Dollar and other similar Western currencies. They may not be outright denouncing the dollar in this act, but they are certainly challenging its rule.
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