One has to think very carefully about what it means when you say that a nation or a government “wants” something. In the case of a totalitarian state, this is easy. The Soviet government in 1941 wanted whatever Joe Stalin wanted, and the North Korean government today wants whatever Kim Jong-Il wants.

However neither China nor the United States are totalitarian states, and as a result the governments are made of lots of individuals all of whom want different things, and there is a lot of coalition building to form interest groups which also want different things. China isn’t a liberal democracy, but it isn’t a totalitarian state either, and when it comes to economic policy, the fact that China isn’t a liberal democracy becomes rather irrelevant to creating economic policy.

Economic policy in both China and United States for the most part is created by unelected bureaucrats and outside technical experts from business and academia with some input from the public. For the most part there isn’t that much debate about what people want (i.e. make me rich), and so the debate becomes how to give it to them, and most people fall asleep when you start discussing this. The result of this is that the fact that China doesn’t have multi-party elections becomes irrelevant when it comes to economic policy. After all, who elected Bernanke, Paulson. Cox, or the heads of the major banks?

As far as US currency appreciation. It was a hot topic for a while because it involved a very unusual political alliance between textile manufacturers and Wall Street banks. Textile manufacturers are interesting because they are the only industry that would benefit from China-specific tariffs. Wall Street banks want open capital markets and would like RMB convertibility.

However both groups got what they wanted without a massive currency appreciation, and neither of them really care much about the issue anymore.

One other point is that I don’t quite understand why China has such a strong advantage in textile manufactures, but it is one piece of the puzzle in Chinese history. One big question is why China didn’t have an indigenous industrial revolution, and the fact that China is outcompeting the rest of the world in textiles and light manufactures right now is quite significant.

This may be significant since SAFE is legendary for being very obstinate about permitting currency transactions. Being able to allow or disallow currency transactions gives SAFE a huge amount of power, and they want people to know that they have it.

I have this sense that the Blackstone debacle really hurt CIC, since it seems that every PRC governmental entity with spare cash seems to be talking about forming its own SWF, which wasn’t the case last year.

Judy — I am not sure why China might be holding more reserves in HK. I just am noting that it seems to be doing so. SAFE has a HK office that was actively buying australian banks for example. Redtape isn’t the answer, since SAFE Beijing isn’t subject to any restraints that SAFE HK also isn’t subject to.

eventualities; eg when they need to deploy reserves in a hurry?Or opportunities when they wish to invest without all the additional redtape on the mainland?

“rising share of China’s reserves are held in HK.”

are they preparing for any eventu

There’s no way to track equity purchases, right?

Nice new location, BTW. I was wondering why NRoubini was trumpeting boatloads of new blogs on the good ol’ RGE site. The reason is clear now as the RGE Monitor has lost its franchise player to free agency!
It used to be simpler in the olden days when I only had to visit two blogs (Roubini/Setser), but I guess things change.

I think that some of the reserves are actually being held in Hong Kong. The amount of custodial liabilities in HK has increased quite a bit.

Also, a lot of the PRC reserve growth may be from “informal money” that is now seeing the light of day as it is being converted to RMB.