Posted on Monday, November 9th, 2009
By the Center for Geoeconomic Studies
Over the last decade, Asia has developed into a major manufacturing base for the developed world. This relationship has provided mutual benefits: the West has received cheap goods while the East has developed its production capacity more quickly. China, to a significant extent, has been the assembler nation, importing raw materials and intermediate products from the rest of Asia and exporting finished products to the West. This relationship is illustrated in the chart above, which plots China’s imports from Asia and its exports to the U.S. and Europe since January 2000. Recently, however, this relationship has weakened slightly — China is providing more demand for Asian exports than the West is providing for Chinese exports. An important question is whether the strong Asian recovery can continue without a robust recovery in Western demand for Chinese goods.
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Posted in China, Trade | 0 Comments »
Posted on Monday, October 19th, 2009
By the Center for Geoeconomic Studies
China has accumulated a massive stock of U.S. dollar reserves in recent years. Statements of concern from China regarding the risk that U.S. economic policy might undermine the future purchasing power of these assets has fuelled the market’s concern that China may shift away from dollar purchases. Yet the chart shows that over the 12 months ending in July 2009 China accumulated more dollar-denominated assets, mainly U.S. Treasuries, than foreign assets in total. Despite its rhetoric, China has thus far taken no actions to wean itself off of the dollar.
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Posted in Capital Flows, China, Currencies | 0 Comments »
Posted on Monday, September 21st, 2009
By the Center for Geoeconomic Studies
This chart shows China’s overweight or underweight observed external investment position since 2000 in a given sector relative to that sector’s share of world market capitalization. A positive number indicates that China is overweight in a given sector; a negative number indicates that China is underweight. As the chart below shows, China is most overweight in materials and energy. This reflects a desire for stable economic growth, which, in the Chinese government’s view, requires a secure source of inputs. As other sectors in China develop, along with the managerial skills required to integrate international acquisitions, China’s aggregate portfolio allocation will likely even out.
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Posted in Capital Flows, China | 6 Comments »
Posted on Thursday, July 30th, 2009
By the Center for Geoeconomic Studies
China has long pegged its currency to the Dollar. After the USD started to depreciate against many currencies in 2002, expectations emerged that China would move away from a tight dollar peg. Following China’s reforms in 2005, the Yuan appreciated by over 20% against the dollar. However, since July 2008, the Yuan has been stable against the dollar, leading to expectations, illustrated by the forward price, that China’s repeg will persist.
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Posted in China, Currencies, Uncategorized | 2 Comments »
Posted on Monday, July 27th, 2009
By the Center for Geoeconomic Studies
China has expressed concern that the growth of the Federal Reserve’s balance sheet will adversely affect the value of its dollar reserves. But China has plenty of experience of its own with rapid balance sheet growth. The PBOC’s balance sheet is a larger share of China’s GDP than the Fed’s balance sheet is of U.S. GDP. Does China’s own experience sterilizing rapid growth of its central bank balance sheet provide a hint about the U.S.’s future?
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Posted in Central Banks, China, U.S. | 3 Comments »
