Originally posted by: Stunt
You know what everyone on wall street thinks?
I'm pretty sure Japanese companies are still some of the most respected in the world with far more market influence than China. I can name 5 japanese companies that are dominating global forces. I cannot say the same for China. No doubt they will be a force in the future, but don't overhype something you obviously know little about.
I was obviously referring to private banks, not companies the american "man of the street" is aware of. Even if even in this field things are moving. Not a lot of people ever heard of Lenovo before its take-over IBM PC division.
And yes, I know what quite a lot of people in wall street know and think about this because of my job. Chinese banks are hard to look into, and escape our general beliefs about how a financial company should be ruled, how financial statements are done and accounting computed. But many people believe that the chinese government and semi-public banks played a major role in the ultra-fast timings of the last years' bond emissions. Not only american bonds, but also european, japanese and latin american ones. Some of them, think of low paying italian 30-years bonds as an example, attracted a suspiciosly high amount of attention that many people consider unanderstandable if you only consider private investment funds. On the other hand they would perfectly fit the needs of an emerging economy with tons of cash and political and economic reasons for accumulating foreign countries' foreign liabilities.
Buying american bonds the chinese government is stabilizing its currency, preventing its appreciation over limits that could be risky for their export. One result of this policy is a sustainable boom in their export to the US with the conseguent huge trade surplus with america, and the possibility to reinvest part of this suplus buying american debt.
Now, both Japan and China would have serious problems if and when the US central bank start raising seriously the interest rates, causing a collapse in the bond values. They are obviously betting on the incapacity of the US to do so, caused by the fears of what a surge in the interest rates could cause in the internal market: if US rates surge the effect will be felt in everything from mortgage payments, credit card repayments and lower corporate investments. Also the billions of dollard of american bonds both China and Japan have parked in wall street are now critical for US financial stability. When they will decide to go short the dollar will slide, and will do it sharp. Many analysts think this will happen in the first quarter of 2006, and the result will be an euro/dollar ratio around 1.40.
From Foreign Affairs, August 2005:
The United States has a particularly delicate relationship with China,
which is currently the single biggest buyer of U.S. debt. To date, disagreements on other issues have not prompted China to slow its accumulation of dollar reserves, but that is not to say that it could not happen in the future. The ability to send a "sell" order that roils markets may not give China a veto over U.S. foreign policy, but it surely does increase the cost of any U.S. policy that China opposes. Even if China never plays its financial card, the unbalanced economic relationship between the United States and China could add to the political tensions likely to accompany China's rise.
Oh, and I DO know quite a lot on this subject.
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