KAI RYSSDAL: Like many who find themselves with more money in the bank than they’d planned on, the Chinese government’s going on a spending spree. Beijing has more than a trillion dollars in foreign currency reserves. Most of it’s tied up in conservative investments, like government securities. In fact, U.S. Treasury bonds are a big favorite. Today China announced it’s going to put some of its hoard in what will become one of the world’s biggest investment funds. Marketplace’s Alisa Roth looked into what Beijing might be buying.
ALISA ROTH: Nobody knows how much money this gargantuan fund will have to play with. Best guesses say it’ll be around $200 billion.
The fund is being modeled after government investment companies in places like Singapore and Norway. China could invest in just about anything, including real estate, stocks or corporate bonds.
Warren Bailey teaches finance at Cornell’s Business School. He says China may try to think more strategically:
WARREN BAILEY: They might want to use that money to further some of their economic goals, investing in foreign natural resource producers or investing in Africa or something like that.
That’s not the only possibility he sees:
BAILEY: It could also further their goals in terms of helping Chinese industry and investments expand overseas. But it is definitely subject to abuse and cronyism.
China’s already promised it’ll operate this company according to the highest international standards. Of course, some of China’s foreign reserves are in Japanese yen and euros. Still China’s the second largest holder of U.S. Treasury bonds. (Japan is the first, in case you’re wondering.) Some are worrying this new strategy could have big ramifications for the U.S.
Currency strategist Marc Chandler says there’s nothing to be nervous about.
MARC CHANDLER: $200 billion sounds like a lot of money. It’s a lot of money compared to U.S. reserves. It’s a lot of money compared to many other countries’ reserves. But it’s not a lot of money in the world economy.
It’s not a lot in terms of China’s total reserve, either. Some say that could grow to more than $2 trillion by the end of the decade.
In New York, I’m Alisa Roth for Marketplace.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.
Give today and get our limited edition tote.