Speaking of which, China is more of a free agent willing to honour the principle of non-intervention to seek raw material and energy supplies where it pleases, Western human rights happy talk aside. In a more strictly financial sense, we see the contrast most clearly in the aftermath of S&P rightly putting the US on a negative outlook for its triple-A credit rating. Having had the experience of being banished from triple-A status itself, the Japanese should know.
What's more, Japan is wary of criticizing the US for obvious reasons given its own bloated public debt (but not so much of the foreign-sourced variety; more on this later). While Japan strives to preserve a system that saw itself rise on America's coattails in the postwar world economy, the Chinese are looking to chart a course of their own. Yes, it may take decades or centuries, but never let it be said that the Chinese don't plan ahead:
While Japan played down concerns about US creditworthiness after the decision, China’s foreign ministry on Tuesday urged Washington to protect investors in its debt. “We hope the US government will take responsible policies and measures to safeguard investors’ interests,” it said.$1 trillion in reserves was already unfathomable to me; $3 trillion is utterly incomprehensible. To be sure, the Chinese keep complaining about America's evident death wish on the dollar's value for all that implies on China's holdings. As I've said before, those fooled by the free-spending fool are the bigger fools. Still, China's willingness to berate the Americans is potentially another warning.
The Chinese government has repeatedly called on Washington not intentionally to debase its currency and to protect the interests of foreign investors in its bonds. China’s foreign reserves increased by $197bn in the first quarter to $3,050bn, exceeding the symbolic $3,000bn mark for the first time. The reserves are the world’s largest by far and although their exact composition is regarded as a state secret, about two-thirds are believed to be invested in US dollar assets.
According to US data, China held $1,154.1bn in US Treasuries at the end of February, making it the largest foreign holder of US debt ahead of Japan’s $890.3bn. The Federal Reserve is the largest overall holder of US Treasuries with $1,368bn on its books.
Senior Chinese officials, including Zhou Xiaochuan, central bank governor, have said that China needs to reduce its foreign exchange holdings and to improve and to diversify its reserves from any over-reliance on US dollar assets. However, the sheer size of China’s reserves means there are no other asset markets in the world large or liquid enough for China to stash its increasing cash pile.
Or maybe not. On to $4 trillion in reserves!? Talk about subprime globalization. In any event, it's clear who owes more to whom among Asia's economic giants and is more willing to play by a set of rules from an increasingly bygone era.
