The Huge External Savings Dilemma Remains To Be Solved; &Nbsp, The Surge In Gold Reserves.

When it comes to trillions of US debt, one question is: why should China buy so many US Treasury bonds and tie itself up with the US?

As the world's largest foreign exchange At present, China has a huge foreign exchange reserve of US $3 trillion and 200 billion. According to Lyon, chief economist of global research at Standard Chartered Bank, if the past 10 years are characterized by "made in China", the next 10 years will be characterized by "owning China".

However, in today's world economic environment and international financial ecology, the "digital predicament" behind the surface is a "fact dilemma" that must be broken through. Zhang Ming, deputy director of the International Finance Office of the Chinese Academy of Social Sciences, believes that the fundamental solution to the safety of external storage lies in the fundamental transformation of the mode of economic development. We need to accelerate structural adjustment so as to change the current growth pattern and prevent the accumulation of foreign exchange reserves by reversing the double surplus.

Investment US debt It's a helpless move.
 

The central bank and the safe have said more than once that US Treasuries are still important investments in China's foreign exchange reserves. Wang Jianxi, deputy general manager of China Investment Corporation, said at the beginning of 2011 that the scale of external storage was too large to be effectively managed. "Many markets are relatively small. Once they got in, they blocked the market, and the market could not move."

Mansoor, chief foreign exchange strategist at Swiss bank, believes that the US Treasury bond market is the only bond market in the world that can accommodate about 10 trillion US dollars in foreign exchange reserves. He said the market for German bonds and British bond markets was about $1 trillion, compared with the smaller scale of the gold market.

As the Financial Times said, "it is hard for China to find credible and mobile investment opportunities for its" embarrassing "wealth. Despite reluctance, it has to rely on the US Treasury market as a safe haven. "

Zhao Xijun, an associate professor at the school of Finance and finance of Renmin University of China, believes that for the global capital investment market, US Treasury bonds are already relatively small risks. First, the US dollar is the world's largest reserve currency; second, the United States has the largest gold reserves, and once these crises emerge, these gold can be liquidate to repay debts; third, the United States has the most abundant land, and it is the richest country in the world. From the point of view of debt, the ability of the United States to repay debts is no problem.

Increase Holdings gold Reserve surge

Gradually getting rid of the bondage of US dollar assets is the consensus of all walks of life. The question is, besides the US debt, what can China's foreign reserves buy?

Under the global economic instability, central banks have begun to increase their holdings of gold. South Korea's central bank said in August 3rd that it bought 25 tons of gold between June and July, making gold reserves 39 tons, the first time the central bank has increased gold holdings in the past 13 years. In the past year and a half, Russia bought the most gold and bought a total of 181.5 tons. By the end of last year, China's gold reserves accounted for less than 2% of the total reserve assets, and the proportion of gold in foreign exchange reserves in developed countries was generally 60%-70%.

Wang Xiaoyi, deputy director of the safe, explained that in 2009, our foreign reserves amounted to 22 times the value of the global gold market in the year, 12 times the global iron ore that year and 1.2 times that of the same year, and the supply and demand gap of these assets is very limited each year. Wang Xiaoyi said that the difference between supply and demand of gold every year is only 300 tons, worth 13 billion 800 million US dollars. This means that large-scale purchases of gold will rapidly push up the price of gold.

Zhao Xijun did not agree with China's foreign exchange reserves at this time. He believes that in different stages of development, different countries have different considerations about holding gold or other assets. As a relatively mature market economy, investment opportunities are relatively small, and more are relatively stable wealth, such as gold can meet demand. But for developing countries, there may be more assets for investment and turnover, so they tend to hold more foreign exchange reserves and can be used to import raw materials, expand production and meet the increasing investment and consumption needs at any time.

The safe said recently that "effective diversification is a strategic asset allocation and needs to be prospectively planned and implemented. Following the short term performance of market and public opinion, diversification is often not rational and not professional enough, so it is easy to fade into speculation.

CIC almost Full warehouse operation

Since China's foreign exchange reserves have exceeded the trillion dollar mark at the end of 2006, the discussion on the diversification of foreign exchange reserves has begun. In fact, the investment pattern and investment structure of China's foreign exchange reserves have changed quietly.

As an attempt to widen foreign exchange investment channels in China, CIC was founded in September 2007, carrying $200 billion to hunt in the sea. In May 2007, CIC invested $3 billion in the US Blackstone Group. However, after Blackstone's IPO, shares fell below the issue price. As the first investment of CIC, it triggered controversy over the way of foreign investment and risk control at home. Since then, CIC has subscribed for the Chinese Railway H-share issue for us $100 million and bought a convertible equity unit that Morgan Stanley has issued to become a common stock for about $5 billion. Under the influence of the financial crisis, CIC failed in its first year, and its overseas investment return rate was -2.1% in 2008.

After paying high tuition fees, CIC focused on diversification of investment in the next two years, focusing on risk diversification. Portfolios are mainly concentrated in global open market stocks and bonds, and direct investment in some excellent companies.
 

Today, CIC's global portfolio is dominated by financial sector (17%) and energy (13%), while materials, information technology, industry and non essential consumer goods account for 10% (or more) of CIC's dispersed equity portfolios. CIC resources company, Kazakhstan petroleum and natural gas exploration and development company and other famous enterprises all have CIC. In 2009 and 2010, CIC's overseas investment return rate was 11.7%, according to CIC 2010 annual report, CIC is almost full of operations. CIC is also expected to usher in a new round of capital injection in the near future.

Analysts believe that although China wants to break its dependence on US Treasury bonds, no other market can absorb current capital flows into China's foreign exchange reserves. As long as China's foreign exchange reserves continue to maintain its current size and even continue to expand, then China's dependence on US Treasuries is hard to eradicate.