Chinese Investment in the U.S.: $2 Trillion and Counting

Voici un excellent article, qui détermine combien de bonds américains que les Chinois détiennent.

Un peu plus loin, dans l’article, il explique pourquoi les Chinois n’ont pas le choix d’acheter des bonds américains.

Extrait de: Chinese Investment in the U.S.: $2 Trillion and Counting, Derek Scissors, Ph.D., the Heritage, March 1, 2011

Chinese investment in the U.S. is commonly misunderstood, both the size of holdings and the forces behind them. Most Members of Congress would put Chinese investment in the U.S. at about $900 billion. This is too low by $1 trillion and possibly more. Many participants in financial markets would fret over the PRC potentially choosing to disinvest from the American economy. This seems reasonable; however, it is essentially impossible.

The Department of the Treasury just issued its preliminary annual report of foreign holdings of American securities. It puts total Chinese investment in the U.S. at $1.61 trillion as of June 30, 2010.[1] This is not entirely accurate, but it is far better than the figures in the unrevised monthly Treasury reports used by Congress and the media. To illustrate: the total given for China’s Treasury position was previously $844 billion in June 2010. Upon revision, it is $1.11 trillion.

There are two problems. First, the amount of U.S. dollar assets held by the PRC is obscured by poor numbers. Second, there are widespread misconceptions of why China holds dollars. It does so due to its balance of payments system. Until Beijing changes its own rules—which it so far has declined under intense foreign pressure—it has no choice but to buy. Disinvestment cannot occur.

Flawed American Numbers  

Congress and the public rely on Treasury’s monthly series on major foreign holders of its bonds, which previously put China’s total at $892 billion at the end of 2010. This was misleading in four ways:[2]

1.      It obscured more than $250 billion in Chinese purchases made via Britain, Hong Kong, and offshore sources, such as the Cayman Islands.

2.      It excluded at least $300 billion in purchases of agency bonds from Fannie Mae and Freddie Mac held through the end of 2010.

3.      It excluded more than $125 billion in purchases of stocks and short-term debt.

4.      It excluded dollars held outside securities, such as in Chinese and other banks.

Treasury’s annual report addresses the first three problems. It traces some indirect buying, especially through Britain. It includes agency debt. The annual report also includes estimates of other Chinese holdings, as in U.S. stocks. The headline figure of $1.61 trillion is a much more accurate number than $892 billion.

In the annual report, Treasury uses a more complete survey than the monthly report. Unfortunately, the annual survey is not frequent enough. It is eight months out-of-date upon release and 20 months out-of-date before being revised. Like the inaccurate monthly series, the annual report cannot be used to ascertain whether the PRC is currently buying or selling bonds. Other limitations of the annual survey include failure to attribute all indirect buying; for example, the Caymans were said to invest $732 billion. It does not measure simple bank deposits denominated in dollars. These are not as important as investments but may involve large sums.

Flawed Chinese Numbers

Chinese figures shed additional light on the true nature of the purchases: They are not choices to be unraveled at any time; they are the unavoidable outcome of China’s balance-of-payments regime.

The PRC’s official foreign exchange reserves stood at $2.85 trillion last year. Remarkably, total Chinese foreign currency holdings are even larger. The domestic banking system appears to have held almost $400 billion more in foreign exchange at the end of 2010, though no such figure can be confirmed.[3] A low figure for the country’s total foreign exchange holdings is therefore better estimated at $3.25 trillion.

A higher estimate, also using official data, puts total foreign exchange in the banking system at more than $3.4 trillion.[4] Sovereign wealth fund China Investment Corp. was originally granted $200 billion in foreign exchange, though its present assets are unclear. Finally, deposits held overseas by Chinese entities outside the central government are excluded. It is possible total Chinese holdings exceed $3.6 trillion.

There is no official Chinese figure for total holdings, or for the dollar’s share in those holdings. The lowest estimate of the dollar share is about 58 percent. The highest is an official figure for the dollar share of China’s debt: 72 percent. Chinese dollar holdings therefore most likely ranged from $1.9 trillion to $2.6 trillion at the end of 2010. A recent estimate by Federal Reserve Chairman Ben Bernanke of $2 trillion, which seems to have surprised the Congress as high, may in fact be too low.[5]

Beijing’s True Options

This may sound apocalyptic to some. If $900 billion in purchases was a sign of Chinese influence, $2 trillion is far worse. In fact, the huge figure indicates the opposite: China holds all those dollars because it has no choice.

The PRC cannot spend foreign currency at home. The state controls the entire financial system, and foreign currency cannot be invested overseas by citizens. Any attempt to spend foreign exchange at home—for instance, to build hospitals—returns the currency to the state. When pressed, senior Chinese officials acknowledge this.[6]

China' official foreign Reserve

Foreign currency in banks, either to finance commercial activities or simple deposits, accounts for some holdings outside official reserves. However, that leaves perhaps $3 trillion invested overseas. The number is soaring: the balance-of-payments surplus has averaged almost $400 billion annually the past four years.

This is after China buys all its oil, iron, gold, and so on. Outside bonds, China’s outward investment is $55 billion to $60 billion annually—sizable, but only 15 percent of the required outlay.[7] This includes all the purchases of stocks and other assets foreign countries have allowed.

Where does the rest go? There is no European bond market, and most national euro-denominated bond markets are underdeveloped. The PRC’s holdings of Japanese government bonds are comparatively minor and may be shrinking.[8] Almost all other bond markets are too small.

Only one market is large enough to absorb all that money: the U.S.

If China were running $150 billion annual surpluses, it could avoid investing in the U.S. If it changed its balance-of-payments rules to greatly loosen state control, as Washington wants, it could avoid investing in the U.S.

At $400 billion annually and unable to use the money at home, it must allocate huge amounts to American bonds. The amount is so large because there is nothing else for China to do.

C'est beau, notre supposément  «libre-échange», quand un pays a une balance commerciale positive de 400 milliards par année, ça veut dire que leur monnaie est littéralement sous-évaluée et qu'il y a plus de 400 milliards de produits qui pourrait se faire ailleurs.

Better Data Make Better Policy

There is far more Chinese money in the U.S. than is commonly understood, yet no disaster has occurred. This is partly because of the depth of American financial markets, but also because the PRC cannot disinvest under its huge external surpluses and rigid balance-of-payments rules. The actual lesson of $1.6 trillion in June 2010 (and counting) is no Chinese financial influence over America.

Misconceptions are caused in part by incomplete data. Moreover, when conditions finally change, Chinese funds must be monitored better. Most important, the PRC is not just pegged to the dollar, it is dependent upon it. Addressing that dependence will yield a more open China. To encourage the transition to a more open China, the U.S. should:

De plus, si la Chine n'achète pas de bonds américains, qui va soutenir l'immense irresponsabilité de Bernanke à s'endetter, s'il refuse d'acheter de bons Américains, l'Économie américaine s'écrase, la monnaie américaine devient littéralement sous-évaluer, et les Chinois ont un sérieux compétiteur sur le dos.

Alors, vaut mieux acheter les bons Américains, les maintenir sous respirateur artificiel, les laisser se surendetter et délocaliser toutes leurs industries, et graduellement l'ensemble de la production manufacturière va se retrouver en Chine, les flusher au risque de perdre les réserves américaines, mais on aura acquis entre temps leurs usines de fabrications plus leur centre de recherche et développement.

Improve Data Collection. The annual Treasury survey is a weighty undertaking but perhaps could be made semi-annual. If not, a more limited quarterly or monthly survey superior to the monthly foreign holders series should be created. Congress needs better information, and Treasury should provide it.

Offer Mutually Beneficial Cooperation. The U.S. should encourage China to address dollar dependence. Led by Treasury and including the Department of State and the White House, the U.S. should offer technical assistance and extensive financial cooperation in case of any instability. This could be coupled with reciprocal Chinese cooperation in other areas.

Derek Scissors, Ph.D., is Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation.

Extrait de: Our dollar, China's $2 trillion problem, Fortune, Colin Barr, February 9, 2011

Could the United States and China be even more co-dependent than we thought?

On Wednesday Fed chief Ben Bernanke became the first American official in recent memory to admit just how deep a hole we have dug ourselves with our biggest creditor.

What's a trillion or two among friends?

Bernanke said China holds at least $2 trillion of U.S. government bonds. That is more than double the widely cited official figure, which is published monthly by Treasury.

As staggering as Bernanke's number is, his coming clean comes as a relief. As ugly as our debt problem is, it creates problems for China too -- what to do with all that paper?

And maybe, just maybe, the more facts that are out there, the better decisions policymakers will eventually make. Emphasis on eventually.

"The monthly Treasury series is wildly inaccurate, but it's good that someone's finally willing to say so with the doors open," said Derek Scissors of the Heritage Foundation. "Perhaps with a reasonable figure available, we can see more clearly the implications of China's dependence on the dollar."

Officials in the two countries have been trading jabs lately over each other's unpopular policies. Both have been easy with money in a bid to spur growth, but Bernanke has taken a beating in China and elsewhere for the recent spike in global food inflation.

For its part, China has spent years holding down the value of its currency to boost exports – a program that is drastically out of favor here with unemployment at 9%.

The dollars it has purchased in pursuing that policy now expose it to big risks: Scissors notes that China stands to lose hundreds of billions of dollars on its Treasury purchases should the yuan appreciate significantly, as U.S. policymakers would like.

Of course, there is also the question of just how the U.S. will pay off on all its promises. Testifying before the House Budget Committee, Bernanke said in response to a question from Rep. Tom McClintock that China holds as much as a quarter of outstanding U.S. government debt – "more than $2 trillion" of Treasury securities.

The comment drew a double-take from McClintock, a California Republican. Apparently referring to the latest official count released by Treasury, McClintock asserted that China's holdings amounted to around 9.5% of outstanding U.S. government bonds.

McClintock is apparently referring to the latest official count, publicized monthly in Treasury's major foreign holders table. Those figures, from November, show that China owns $896 billion of Treasurys.

Both McClintock's and Bernanke's figures foot fairly well with the $9 trillion of Treasury debt outstanding at the end of the third quarter, according to the Fed's Flow of Funds report.

But Bernanke's figure is far more revealing, in that it sheds light on the true size of China's stake in keeping the U.S. economy rolling. It is in line with the estimate made by China watchers such as Scissors, who says Chinese holdings of Treasury and agency debt – that issued by the mortgage investors Fannie Mae and Freddie Mac – likely range between $2 trillion and $2.5 trillion.

Why do the Chinese hold so many U.S. bonds? It's not because they like us, sad to say. The huge Treasury hoard is a function of China's huge trade surplus – Scissors estimates

China's 2010 balance of payments surplus at $471 billion,
or $39 billion a month

 – and the lack of an alternative to the dollar.

"There is no unified European bond market, and Japan is closed to large Chinese purchases," he writes. "The only market large enough to absorb such huge surpluses is American bonds."

Scissors has been questioning the official Treasury tally for some time. He has noted, for instance, that China's official Treasury holdings remained static over the past year – ranging between $846 billion and $929 billion – even as the country ran its massive surplus. How is that possible?

Scissors contends it did so in part by purchasing Treasurys through other countries. Over the past year, Treasury's tally of Treasurys held in the U.K. – including in the tax havens of the Channel Islands – has surged by $355 billion.

Those sorts of purchases will only continue till China changes its ways -- which isn't going to happen tomorrow, not with a national leadership change set for next year.

"China will not break the yuan's peg to the dollar until it can resolve the matter of soaring dollar holdings, and that can be done only through financial reform," Scissors writes.