Watch out China, you may soon be (financially) out-gunned …
China’s July reserve increase – at least if the end-July total of $954.5b that the Chinese leaked is right (Lex had a slightly higher number) – was pathetic.
A measly $14b.
Not the manly $20-25b we expect. Sinopec’s acquisition of a Russian oil field from TNK-BP (a potential $3.5b outflow) may be the reason. (Hat tip, Peter Lee of Euromoney.)
Even with an extra $3.5b added in, China’s total isn’t all that impressive. Sure, if it was all invested in dollars, it would be about 1/5 of the monthly US current account deficit.
But other emerging markets are raising the bar.
China’s $14b total was topped by the combined $20b from its fellow BRICs. Brazil added $4b or so in July, India $1b and Russia $15b. These numbers have not been adjusted for valuation changes, but valuation wasn’t a big factor in July.
For that matter, Russia and Saudi Arabia combined to add almost $25b to their central bank’s foreign assets in July. That is a lot of money that has to be lent out to someone. And Russia and Saudi Arabia combine to account for less than ½ of the roughly 40 mbd in oil exports (a lot of oil is consumed where it is produced). There are a lot of other oil exporters with an awful lot of cash on hand right now.
Russia paid about $24b to retire its Paris Club debt in August, and it still ended August with only $6b less in the bank than it had in July. Do the math .. Russia’s underlying pace of reserve growth remains very, very robust.
The other BRICs together now hold $500b or so in reserves. That doesn’t match China’s $950b ($1 trillion counting reserves shifted to the state banks). But it ain’t too shabby either.
And by my (confidential, don’t tell anyone) estimates, the combined reserves of the world’s big oil exporters – just those in the emerging world – will top $950b by the end of 2006. That total counts (as usual) all foreign assets that show up on the Saudi Monetary Agency’s balance sheet.
China’s reserves will certainly top $1 trillion by then. But the oil exporters are gaining … And if the Abu Dhabi Investment Authority’s rumored $400-500b is added in, well, China almost starts looking like a bit player in global markets ..
No Responses to “Watch out China, you may soon be (financially) out-gunned …”
Guest • September 8th, 2006 at 12:49 pm
Emmanuel • September 8th, 2006 at 12:53 pm
“Let them eat Treasuries” I say. Just as the real-estate fire-sale is beginning, might there be a chance of a T-Bill sell-off in the offing? In any event, I am divesting myself of the junk. You read that right–I am convinced that, given Uncle Sam’s fiscal and monetary decrepitude, US debt ought to be closer to junk than triple-A. The politics of the credit ratings game are well-known, and shouldn’t be too hard to decipher given the potential meltdown that could occur should these IOUs be properly valued.
If you’re foolish enough to buy more and more of this stuff, I have little sympathy for what’s in store for you [barbershop sounds in the background...bzzz...slash].
OldVet • September 8th, 2006 at 1:38 pm
Good lord, so many trillions of dollar bonds sloshing around, and so few US taxpayers to pay the interest and principal as they come due. There will either be a taxpayer revolt in the US, or a devaluation of the US dollar. Mr. Paulson’s “strong dollar” talk aside, since it makes no sense for the US, my bet is on a dollar devaluation. Sorry, world, but you should have followed Hamlet’s advice to son Laertes on his departure for France: “Neither a borrower nor a lender be, For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.”
Guest • September 8th, 2006 at 1:40 pm
A Gulf state asserts itself in the world: http://www.economist.com/world/africa/displaystory.cfm?story_id=7887812
Guest • September 8th, 2006 at 8:03 pm
It was Polonius, not Hamlet, but point taken.
DOR • September 8th, 2006 at 10:32 pm
I seem to recall forecasting something in the range of $14 megabucks a month tacked on the reserves . . . about three months ago.
.
bsetser • September 9th, 2006 at 9:57 am
DOR — what was your logic for $15b a month? To me, $15b seems extremely low as it is basically China’s monthly current account surplus, so it assumes no net capital inflows, whether from FDI or more hot money flows, and that seems odd.
DOR • September 9th, 2006 at 11:35 pm
Brad,
My forecast was based on the trade balance + utilized FDI inflows vis-à-vis the rise in forex reserves.
Since the data are unreliable, the most logical approach seems to be to look for consistency. I find consistency to be a pretty good leading indicator of what numbers will be reported.
I also take great care not to get caught up in thinking the numbers mean what they might mean in an OECD economy.\
.
Gcs • September 10th, 2006 at 8:55 am
sermo-nette
if we think for a moment
like ex harvard prez
larry s or
china flack
bob m used to think
when i knew him
ie
like sturdy global keynesians
and
as a fact
the economy world wide
is as it its now
spontaneously prone
to serious demand constrained
under production
then as proper planetary macro managers
we know we can create
global “win win ” output gains
by increasing global effective demand
ie
by upping state borrowing
state spending and state tax reducing
now there is no UN budget big enough
to even put a dent
in this optimal borrowing gap
nor does the world body
have proper credit
or a world money
so ….
the top credit large states
must take up the slack
right???
silk hat north states
buyers of last resort
———-
polonius asks
now how do they repay ???
they don’t
they devalue and borrow more
why okay ??
same old same old
chronic demand constraint
looked at south state by south state
the present value
of
the future portfolio loss
is so much less
then the output loss
that would follow
from going down
the non/less
borrowing path
so there’s an optimal aggregate
silk hat state borrowing
this is not exactly top of the mind stuff
for our side walk ctizen supers
out there is it ????
as a start
in stead of
” do u now where your children are right now
do u know where they ought to be ???”
the 11 o’clock news brake oughta run this
“do yu know where
your globe’s
public borrowing number is right now ????
do u know where it ought to be ???”
bsetser • September 10th, 2006 at 12:42 pm
DOR — was there a fall in realized inward FDI in july? Trade surplus was @$14b.
DOR • September 10th, 2006 at 8:45 pm
Brad,
July trade balance +$14.6 billion
Utilized FDI $4.3 billion
Sum: $18.9 billion
The rise in reserves has tended to be about 2/3rds of the rise in trade + FDI.
.
bsetser • September 11th, 2006 at 12:07 pm
why 2/3s? any ideas? tis a bit of a change from say 04 … or even 05 (once you adjust for valuation effects)
no more hot money flows?
FDI outflows?
also is aug utilized fdi out?
DOR • September 11th, 2006 at 10:47 pm
Lack of good data, capital flight (in / out), take your choice.
The combined trade and FDI total was 6-9 times as much as the rise in reserves back in 1998-2000, and then tapered off. 67.6% in 2003, 37.7% in 2004, 83.4% in 2005.
Oh, and let’s not forget redefining foreign purchase of residential real estate as FDI! The SAFE and PBoC can’t agree on the numbers, so why should we?
No August data yet.
.
