Andy Xie Recommends China Diversify Out Of Treasuries

By Edward Harrison On Aug 9, 2011

The Chinese foreign reserve accumulation is really about the exchange rate peg. As long as the Yuan’s dollar peg remains near present levels, the current account imbalance will result in an accumulation of dollar reserves. Former Morgan Stanley Economist Andy Xie says the Chinese do have a choice as to what US dollar assets to buy, even so. He suggests China diversify out of Treasuries and into other US dollar assets. Longer-term, he says the peg must go.

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Edward Harrison is a senior Editor at Bloomberg. He is also the founder of Credit Writedowns newsletter, a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

Links 08/09/2011

After the FOMC, Norway and the UK

4 Comments

Dave Holden says 13 years ago

Mish relays another good Petis piece on this

https://globaleconomicanalysis.blogspot.com/2011/08/idea-china-to-stop-buying-treasuries.html
1. Tom Hickey says 13 years ago
  
  Exactly.
Tom Hickey says 13 years ago

China is still going to continue to have reserves at the Fed as long as it continues net exporting to the US. If it wants to save in USD and is not happy with the IOR, then it has to switch those assets in its Fed deposit account to a Fed savings account, i.e., tsys.

If China would choose not to continue to finance the capital account to offset the current account, then its export share to the US will drop. Therefore, if China no longer wishes to save in USD, it needs to open its markets to US exports and it also needs more FDI in the US. Or else China needs to find markets and trading partners other than the US. This is not rocket science. The problem is not US finances. It is China’s own trade policy that it is causing it financial heartburn.
1. David Lazarus says 13 years ago
  
  It could buy US real estate, particularly farms. It could then export all its produce back to China. That will create problems for the US.

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