China's Debt Addiction (pot and kettle going at each other)

WSJ ^ | 08/09/11

[TigerLikesRooster]

China's Debt Addiction

Who is Beijing kidding with its chest-thumping economic lectures?

The Chinese government and its media outlets are using Standard & Poor's U.S. credit downgrade to give Washington a tongue lashing for its "debt addiction." And it's no surprise that Beijing would take the chance to score points domestically and rebuke the know-it-alls at the U.S. Treasury, having been on the receiving end of their hectoring for so long.

On the other hand, who are the Chinese kidding with their chest-pounding economic nationalism? A People's Daily commentary yesterday threatened to use China's holdings of U.S. debt as a "financial weapon" to deter arms sales to Taiwan. The official Xinhua news agency's Saturday editorial was a hilarious moral lecture, suggesting that an addicted America's ability to print dollars should be put under "international supervision." But if borrowing is really an addiction that has sapped America's self-discipline, China is both the pusher and a user.

The real reason Beijing is anthropomorphizing the bond market is to deflect domestic criticism over losses on the investment of its $3.2 trillion in foreign exchange reserves. Chinese are asking why Beijing continues to lend their wealth to Americans rather than using it on development at home. The question arises from a misconception that Beijing has encouraged, which is that the reserves represent the earnings of the Chinese people, their "blood and sweat."

[TigerLikesRooster]

P!

[Tempest]

China is addicted to buying our debt and we’re addicted to creating it.

This article reads like someone in the Oblamer regime wrote it.

[Lazlo in PA]

Chinese are asking why Beijing continues to lend their wealth to Americans rather than using it on development at home.

Develop what exactly? They are building massive ghost towns to create busywork as it is.

[AfricanChristian]

There is a key difference between US debt and Chinese debt. Accumulating debts in a growing economy is different from accumulating debts in what is essentially a stagnating economy.

College students are granted loans because there is a high expectation that they would repay them - i.e their earnings will naturally grow overtime.

It is not inconceivable to see the Chinese economy growing at at least 7% per annum for the next decade. On the other hand, very few people are confident that America is on an upward growth trajectory.

That, is the problem.

[ponder life]

Develop what exactly? They are building massive ghost towns to create busywork as it is.

These ghost towns don't represent a majority of units built. But it does point to the fact that China needs diversify her wealth outside their own country.

And I believe, as debt in the Western world and Japan causes a drag in economic growth, China will invest their money in buying Western assets, i.e., companies. First with small and mid cap (as they are doing now). But as the economic malaise drags on, the political resistance for them to buy the really big companies (or at least a large stake), like GM, Exxon Mobil, etc. will begin to subside.

So, don't be surprised, that over the next two decades, we will see more and more Chinese fund managers on corporate boards from Volkswagon to GM to Toyota.