Monday, October 03, 2005

What Would China Do?

I keep thinking about China. They supposedly have $100 - $300 (latest estimates) billion in US currency & obligations. What will they do with it?
Since the trade imbalance is only growing and they know it will continue that way forseeably, what do they think they will do with it?
They don't want to or won't buy enough American or European products.
Of course they want to buy oil companies because natural resources are something they do want.
They will buy raw materials and technology. They have even bought entire factories.
I predict HUGE amounts of money will be put towards political influence.
Most likely the largest part will come indirectly through China's corporate trade partners.
Walmart in particular probably has or will evolve a huge pro-China-trade lobby.
Energy companies, which are already the most effective lobbiests will be recruited (with semi-direct inducements to officers or through entities like the Carlyle group that exist for this purpose).

But what will they do with all the money they still have? And it's not just dollars. It's billions in Euros too. If they are blocked from buying resources and they can't buy adequate influence to change that, what will they do?
Sell dollars?
Threaten to sell dollars?
Would the US be happier because the weaker dollar (from Chinese hypothetical dumping) might ease trade?
Or maybe the Chinese are just pretending their dollar purchases are for stabilizing Chinese currency but really it's a sabotage of US monetary policy by forcing a stronger dollar even in the face of a trade deficit (to continue the trade deficit).
They don't really lose much by hording dollars.

It's very puzzling to me. What would you do if you were China.
Your goal is to increase employment and worker standard of living.
To maintain the means necessary for continuing growth and influence in the world.
To improve national defense and regional influence.

The biggest obstacles: Natural resources, trade barriers, technology, infrastructure, geographic (it's a big country with resources and major urban centers very spread out).

It's a reasonable bet that a significant portion of world GDP over the next 10-15 years will go into the Chinese infrastructure.

If I was China, I would be looking to put my money
1. Where it was productive and free of potential politically motivated trade problems
2. Where it could influence trade policy of its partners - especially the US and EU
3. Where it could create a de facto control of territories - esp. Taiwan - where it has an ideological interest.
4. Resources it doesn't have enough of (mostly oil, technology, and technologists).

I don't think they're going to be buying a big pile of Chevrolets.
They're already trying to buy oil (and they did buy Canadian oil)
I bet the influence buying has happened and is just hidden or underpublicized.
Who knows what they're doing in Taiwan. A lot I bet. I wonder if they're making huge investments in Korea to gain influence and/or control there?


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