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China To Deploy Foreign Reserves

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http://www.ft.com/cms/s/0/b576ec86-761e-11...?nclick_check=1

Beijing will use its foreign exchange reserves, the largest in the world, to support and accelerate overseas expansion and acquisitions by Chinese companies, Wen Jiabao, the country’s premier, said in comments published on Tuesday.

“We should hasten the implementation of our ‘going out’ strategy and combine the utilisation of foreign exchange reserves with the ‘going out’ of our enterprises,†he told Chinese diplomats late on Monday.

Mr Wen said Beijing also wanted Chinese companies to increase its share of global exports.

The “going out†strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state-owned industrial groups such as PetroChina, Chinalco, China Telecom and Bank of China.

Qu Hongbin, chief China economist at HSBC, said: “This is the first time we have heard an official articulation of this policy ... to directly support corporations to buy offshore assets.â€

China’s outbound non-financial direct investment rose to $40.7bn last year from just $143m in 2002.

Mr Wen did not elaborate on how much of the $2,132bn of reserves would be channelled to Chinese enterprises but Mr Qu said this was part of a strategy to reduce its reliance on the US dollar as a reserve currency.

“This is reserve diversification in a broader sense. Instead of accumulating foreign exchange reserves and short-term financial assets, the government wants the nation to accumulate more long-term corporate real assets.â€

State-owned groups, particularly in the oil and natural resources sectors, have stepped up their hunt for overseas companies and assets on sale because of the global crisis.

China Investment Corp, the $200bn sovereign wealth fund, has been buying stakes in overseas resources companies and has taken a 1.1 per cent stake in Diageo, the British distiller.

In an interview published in state-controlled media, the chairman of China Development Bank said Chinese outbound investment would accelerate but should focus on resource-rich developing economies.

“Everyone is saying we should go to the western markets to scoop up [underpriced assets],†said Chen Yuan. “I think we should not go to America’s Wall Street, but should look more to places with natural and energy resources.â€

Here we go.

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The nuclear option. Spend it before the expiry date.

You have to wonder why the US doesn't bring forward the expiry date. I would.

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The nuclear option. Spend it before the expiry date.

You have to wonder why the US doesn't bring forward the expiry date. I would.

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This is a smart move.

Part 1 of their strategy is to build up a lot of debt from their exports. The vendor financing model often ends in tears for the vendors.

Part 2 is to exchange those debts for physical assets.

The Japanese tried to do the same thing but bought trophy assets (Pebble Beach, One Rock etc). I suspect that the Chinese are less concerned about status than the Japanese so they will buy productive assets.

Many countries will find that their net position is that they have sold all of their assets to pay for consumption and will be hoolowed out shells within a generation. They have a lot in common with junkies ..........

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This is a smart move.

Part 1 of their strategy is to build up a lot of debt from their exports. The vendor financing model often ends in tears for the vendors.

Part 2 is to exchange those debts for physical assets.

The Japanese tried to do the same thing but bought trophy assets (Pebble Beach, One Rock etc). I suspect that the Chinese are less concerned about status than the Japanese so they will buy productive assets.

Many countries will find that their net position is that they have sold all of their assets to pay for consumption and will be hoolowed out shells within a generation. They have a lot in common with junkies ..........

Exactly their game plan all along, and exactly what I told Patricia Hewitt they would do when I wrote to her in 2004.

"Capital Inflow" my @rse! Selling up.

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Ah all that money stashed away from previous govt borrowing is about to come out blinking into the light of general circulation. That should do the dollar value a serious mischief.

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Ah all that money stashed away from previous govt borrowing is about to come out blinking into the light of general circulation. That should do the dollar value a serious mischief.

Anytime one of the largest holders of unencumbered money in the world says that they would rather have things than bits of paper, it should be a signal to us that the deflationary era is closer to its end than its beginning ......

I see this as a challenge to all paper money and not just the Dollar ......

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How do you say "Shine your shoes boss" in Cantonese or Mandarin?

How about "the means of production rightfully belongs to the people?" ;)

(typo)

Edited by huw

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Yes, isn't this inflationary ? All this extra cash chasing the same finite assets ?

no, more like a dash for assets. Chinese have been doing this for a while, spending their dollars and buying gold, silver, copper, steel, lead - anything tangeable. They want to get rid of their dollars quickly and while the are still worth something but can't risk doing it too quickly or dumping them on the market as that will crash the dollar. The chinese can't afford a dollar crash since they hold so many of them so they are spending them as quickly as possible on commodities. We have a while yet but once the chinese and co are ready then things will get interesting.

This news hit the markets last night, made some change shorting the dollar but it has all been absorbed and forgotten now, business as usual for now.

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Many countries will find that their net position is that they have sold all of their assets to pay for consumption and will be hoolowed out shells within a generation.

Only if they continue to play by the rules that have got them into this pickle in the first place. As times get harder there will be increased pressure for controls on national markets, not just for exports but for debt and asset ownership. IMO this is an inevitable response to China's Mercantilism, and will be justified on tit-for-tat grounds.

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no, more like a dash for assets. Chinese have been doing this for a while, spending their dollars and buying gold, silver, copper, steel, lead - anything tangeable. They want to get rid of their dollars quickly and while the are still worth something but can't risk doing it too quickly or dumping them on the market as that will crash the dollar. The chinese can't afford a dollar crash since they hold so many of them so they are spending them as quickly as possible on commodities. We have a while yet but once the chinese and co are ready then things will get interesting.

This news hit the markets last night, made some change shorting the dollar but it has all been absorbed and forgotten now, business as usual for now.

Daddy Bear will be along shortly no doubt...........

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