Comments on: Commentary on the People’s Investment Company has been outsourced to Stephen Green

By: BH

BH — Tue, 27 Mar 2007 16:51:15 +0000

Not long ago, I would have been in full agreement with the accountant, above. But what value is investment when there simply IS no consumption? Koreans have enjoyed great access to liquidity in recent years, and they only bought houses. The rest of NE Asia is similarly inclined to save. So “it’s easy to make a tax cut or cut the population a check” is, I’m starting to think, not as easy as it sounds. They just take the money and invest it. Who, I wonder, will be the customer that gives all those investments actual income?

By: gillies

gillies — Tue, 27 Mar 2007 11:01:24 +0000

seriously, though - does anyone imagine that the chinese intend to outsource the financial advisory work ? and if they did, would they not do so to some country that showed an ability to generate and manage a surplus of its own ? and it is in any case only a trillion dollars, the kind of sum that the pentagon accounts department could lose through a crack in the floor. and if the chinese are going to act irresponsibly - there has been absolutely no sign of it so far.

By: Guest

Guest — Tue, 27 Mar 2007 11:00:44 +0000

I’m an accountant and tend to view the nations economy as in a company. (Although it makes most macroeconomists raise their eyebrows and sometimes even roll their eyes)

The exports minus imports equals net income.
The resources available from net income or debt can either be used on costs or invested in assets.
The (tangible and intangible) assets are necessary for creating net income in the long run.
If China invest the resources in assets like infrastructure, its getting richer.
Sometimes the Chinese investments are not creating a net income and are a waste, but most are good investments and still it’s better than burning up the resources on consumption (costs). It’s always possible to find ways of investing the surplus - the central bank of Norway has an oil fund investing in all kinds of things. Why should the Chinese not gradually do the same, at least with future surplus? China could also invest more in intellectual capital (education & research). I don’t think the investment slump is a big problem for China - an airport too many for the time being is still more productive than investing too much in housing. If growth slows too much, it’s always easy to make a tax cut or write the population a check.

The US uses the resources on consumption(costs)and unproductive assets like housing and are getting less competitive in the long run, if it continues. The solution for the US is more investments and less consumption. The means could be: higher income taxes, public investments in education, infrastructure etc. and lower corporate taxes.

By: Dave Chiang

Dave Chiang — Tue, 27 Mar 2007 10:59:30 +0000

The China will be buying minor stakes in companies especially in natural resources. They have already purchased minority ownership stakes in Australian offshore Gas reserves, Russian Oil fields, Iran Gas fields, Nigerian Oil fields, Indonesian Oil fields, Malaysian palm plantations, Cuban Tin reserves, Ecuador Oil fields, Angola Oil fields, etc. It is simply politically unacceptable in many nations to retain majority foreign ownership. But even with minority ownership with several members on the board of directors of a corporation provides a greater degree of security and stability than having no equity stake. The increasing global influence of China’s economy has only just begun.

By: carmelus

carmelus — Tue, 27 Mar 2007 10:47:48 +0000

I do not think China will be buying minor stakes in companies. As a matter of fact I think China will try to make a new conglomate by buying different strategic companies in the mining field creating a new BHP Billiton and maybe opening its capital. China will be shopping this year and surely has targeted the companies to spend maybe 300 billion dollars , twice BHP`s market capitalization.

By: gillies

gillies — Tue, 27 Mar 2007 10:43:34 +0000

the chinese could invest the trillion at 2.5% per annum and draw 100 billion every four years. the war chests of all presidential election candidates combined are around 500 million dollars - so even the interest on the interest could buy every presidential election, for ever, 20 times over.
maybe that’s why they would never be allowed to buy an major arms manufacturer - they could use it as a front to corrupt the political process.

By: Guest

Guest — Tue, 27 Mar 2007 09:20:54 +0000

“Were the U.S. to persistently earn substantially more on its foreign investments (”U.S. claims”) than foreigners earn on their U.S. investments (”U.S. liabilities”), the likelihood that the current environment of sizeable global imbalances will evolve in a benign manner increases. However, utilizing data on the actual foreign equity and bond portfolios of U.S. investors and the U.S. equity and bond portfolios of foreign investors, we find that the returns differential of U.S. claims over U.S. liabilities is essentially zero. Moreover, were it not for the poor timing of investors from developed countries, who tend to shift their U.S. portfolios toward (or away from) equities prior to the subsequent underperformance (or strong performance) of equities, the returns differential would be even lower. Thus, in the context of equity and bond portfolios we find no evidence that the U.S. can count on earning more on its claims than it pays on its liabilities.” http://www.econbrowser.com/archives/2007/03/maybe_we_cant_c_1.html

By: bsetser

bsetser — Tue, 27 Mar 2007 08:22:26 +0000

Emmanuel — the CIA data suggests neither the philippines or indonesia ran a large CAD. both actually have surpluses according to the link you supplied, but that may be a bit dated (thailand is listed as having a deficit, and it now has a surplus). but as importantly, China has up to $400b to invest. that is a lot. How much realistically would Indonesia and the Philippines absorb? and how much appreciation would they accept before starting to worry?

Thailand and Korea already have let their currencies appreciate a bit, and both have made it clear that they will resist further appreciation and don’t really want a lot more capital inflows.

By: Emmanuel

Emmanuel — Tue, 27 Mar 2007 07:01:05 +0000

There are a heckuva lot of countries in the region not running large CA surpluses that could use and would love some Chinese investment. Indonesia, the Philippines, and Cambodia come to mind, among others. Say tah-tah for now to the American master and hello to the Chinese one.

In any event, my top suggestion for PIC investment remains the same: sell Ford and GM to the Chinese. Despite the obvious political hurdles, it makes fine business sense.

By: Guest

Guest — Tue, 27 Mar 2007 05:18:45 +0000

or outsource it to and/or buy singapore

but i don’t think there’s any question that china views their “chosen exchange rate regime” as an explicit tool of development policy; they’ve already acted a little thru intermediaries, which i suspect will expand, but when you got a trillion dollars burning a hole in your pocket there’s a learning curve that not only china needs to move up, but the ‘RoW’ as well, as green amply illustrates