China is mobilizing its dollar reserves! The power of China's huge foreign exchange reserves, which stand at over $2 trillion, will be felt around the world as the country seeks to use those funds "more actively". This is VERY bearish for the dollar and treasuries.
1) The government will use its abundant foreign exchange reserves to boost imports and domestic demand as part of its efforts to boost its economy.
2) The country has over 2 trillion in foreign exchange reserves, the world's largest.
3) The lion's share of Chinese reserves are invested in low-risk, low-yield assets such as the US treasury bonds. These assets will likely suffer because of China’s plans to mobilize its reserves.
4) The government has sent clear signals that it is shifting its strategy from passive to active reserve management and exploring more efficient ways to use its reserves to boost domestic development.
5) Zhou Xiaochuan, governor of China's central bank, the People's Bank of China, has said:
"To buy more strategic assets, energy and resources would also be a very important way to efficiently use the reserves. It would help preserve and enhance the value of the reserves,"
“China should consider diversifying the destination of its reserves”
"is it time for China to consider using the reserves somewhere else, instead of concentrating too much on the United States?"
6) A number of Chinese companies are already said to be pursuing major merger and acquisition deals overseas, most noticeably in the raw materials sector.
7) Aluminum Corp of China (Chinalco) announced on February 12 it would invest $19.5 billion in mining giant Rio Tinto Group, bailing out the latter while securing for the state-owned Chinese company access to more resources.
China is considering using part of its huge foreign exchange reserves to help State oil companies explore for overseas resources. The government would use a slice of China's $1.95 trillion in foreign exchange reserves to set up a special fund to finance offshore oil exploration.
9) Fan Wenzhong, a State-owned assets supervision official in Chongqing city, said in an interview with the Shanghai Securities News on Monday that the government should use its reserves to set up a $200 billion overseas industrial fund and a $100 billion "social development" fund.
10) The crisis has prompted nations with much-needed technology to ease those restrictions. Military technology is now much more widely available. (I have been expecting this: the US is selling off military secrets in a doomed attempt to save its economy)
11) The United States and China signed an agreement on January 13 that allows US exporters to sell certain dual-use items to China without acquiring permission from the government. (Dual-use refers to products that can have either civilian or military uses.)12) China will shift the use of its reserves to put more into developing countries and emerging markets. These countries offer growth potential, richer resources and lower labor costs but they need funds for development.
13) Chinese Commerce Minister Chen Deming left for Europe Tuesday at the head of a 300-strong team charged with spending billions of dollars on European products. The procurement team, which will visit Spain, Germany, Switzerland and Britain, could end up spending 15 billion yuan (2.2 billion dollars) or "considerably" more.
14) China’s demand for European goods is growing as a result of the roll-out of a four-trillion-yuan economic stimulus package that includes huge infrastructure projects.15) Europe has an obvious edge over the US in providing China with the equipment it needs. Europe, especially Germany and Switzerland, is much stronger in engineering then the US. (In the US, we focus more on finance and business)16) The use of reserves for budgeted spending or subsidies to boost consumer spending could fuel inflation (which will force China to drop dollar peg).
Conclusion: Buy gold and get out of the dollar NOW! (BEFORE China starts selling treasuries).
