Filling ships full of gold can only make people temporarily rich. Investing in gold is paying someone in south africa to dig rocks out of the ground and melt them down, then paying someone in kentucky to dig a hole and store it. China has contributed much more to the world than 16th century spanish gold thieves.
China should have never bought as many treasuries as they did. They should have bought harder assets, like oil company equites, timber and farm land, mining equities. When they tried to buy an oil company, congress blocked them. There is still no reason they shouldn't have bought diversified assets.
Providing cheap financing for US government during the 2000's, was neither good for the US, nor for China. The US got an asset bubble exacerbated by the cheap money, and the Chinese now have dollars that buy 1/2 as much as the dollars they used to buy the treasuries.
In a way, they have become too big to succeed.
Care to expand on this a little bit? I don't quite understand
Ordinary chinese citizens save $1T in bank deposits.
Bank loans the $1T to mall developers, and high speed railway developers. The developers promise to pay the money back.
They don't pay the money back, because the mall is empty, and no one can afford the high speed trains.
The people worry that the bank can't pay them back, all rush to the bank to get cash.
The Chinese treasury uses $1T in USD reserves to stop the run on the bank.
So, what he is saying, is that the Chinese central bank is already on the hook for about $1 trillion in bad bank loans.
The $3-trillion is foreign exchange reserves China has accumulated from running massive trade surpluses with various countries.
They may blow some of those reserves on failing pet projects, but that just bolsters the point of the article: that it's nearly impossible to spend this money, let alone intelligently.
It's not like China could go to the US and demand we ship banking system or our excess housing stock to them.
Also, it may be a significant to note that increased its foreign while it fell into trade deficit. If that keeps up, the nation will essentially spending money to stay cheap while it spends other money on the many dubious projects from high-speed rail to excess office buildings.
Foreign currency surpluses are different state debt. Japan has the world's second large dollar reserve - and the world's largest state deficit as a ratio of GDP.
http://www.nytimes.com/1997/03/01/world/japan-s-road-to-deep...
China's public private fusion system is a bit different from Japan of course. But claims for the strength of China are monumentally overstated as far as I can tell.
