"China buys US Treasuries with her trade surplus dollars." What I don't understand is, Chinese exporters are the ones receiving the dollars, not the Chinese government or Chinese central bank. So arent the surplus dollars going to the hands of the Chinese private owners of the export companies? How does the Chinese government get the surplus dollars?
Chinese exporters are not allowed to hold dollars and their bank deposits are then exchanged into RMB. The banks go to the Chinese central bank with all these dollars for RMB the required RMB, and then the central bank has all these dollars to purchase US treasuries, etc. with. This practice has been going on for quite some time, and has created a huge increase in the money supply in the mainland, which arguably is driving a lot of their inflation as the increases have outpaced the growth of the economy. Some estimates put the M2 supply increase around 30% last year. Prices have jumped accordingly. The Chinese government is attempting to crack down on this inflation by forcing the banks to hold all that RMB as reserves, but that doesn't seem to be working, so they're increasing interest rates. I even heard that the forced exchange of USD to RMB may be over/reformed, but it would be a major policy shift that would have implications for the exchange rate, which the Chinese government so obviously wants to keep depressed to support their export sector.
China is able to maintain its export-led economic growth, generating jobs for its growing urban population,while continuing to attract foreign investment.
This is some of the things China is doing with their trade surplus and the views from the US Government. Is China...Friend or Foe? http://www.voanews.com/english/news/asia/China-Tops-World-Bank-in-Development-Lending-114111049.html A new study says China has loaned more money to developing countries than the World Bank over the past two years, and often under more favorable conditions. http://www.voanews.com/english/news...lize-China-in-Currency-Dispute-113912709.html In another development, China's official Xinhua news agency says a Chinese delegation visiting the southern U.S. state of Texas has signed deals with U.S. businesses worth $600 million. Chinese Vice Commerce Minister Wang Chao is leading the delegation, which was in the city of Houston Monday. http://www.voanews.com/english/news...ans-Use-in-International-Trade-111383624.html China's central bank says it has expanded the number of Chinese exporters allowed to use the yuan to settle international transactions. The People's Bank of China said Monday a trial program that began in July 2009, with 365 Chinese companies using the yuan for international trade, has grown to include 67,359 domestic firms. http://e.nikkei.com/e/app/fr/gateway/rss_news.aspx?URL=/e/ac/tnks/Nni20110110D10JFF01.htm China Spent Over Y4tln On Resource-Linked Acquisitions In '10 BEIJING (Nikkei)--Propelled by the nation's rising thirst for oil and other energy sources, Chinese companies shelled out more than 4 trillion yen to buy natural resource concessions overseas last year. China 2010 Vehicle Sales Up 32.37% At 18.06mn Units BEIJING (Dow Jones)--China's auto sales last year rose 32.37% to 18.06 million units, the semi-official China Association of Automobile Manufacturers said Monday. http://www.voanews.com/english/news...ideo-in-New-Yorks-Times-Square-114167969.html China has unveiled a 60-second promotional video in New York's Times Square just before its president, Hu Jintao, makes a state visit to the United States. Chinese state media says the video will be shown 300 times a day for the next month and will air on the U.S. cable television news network CNN through February 13. http://ipsnews.net/news.asp?idnews=54123 WASHINGTON, Jan 13, 2011 (IPS) - A Wikileaked January 2009 diplomatic cable from the United States' Beijing embassy forecasting the next three decades of U.S.-China relations warned of the Asian giant's "rapid military modernisation". And last month, the Pentagon confirmed that Beijing's anti- ship ballistic missile â the world's first â was operational.
I will translate: China is able to maintain the transfer of wealth from the US, generating jobs for its growing urban population, while continuing to attract foreign investment. This is puzzling because there is nothing China can export that cannot be made anywhere else, including in the USA. Thus, one must look deeper on the true causes of this imbalance, because China is a huge imbalance to world economy.