China’s Economic Growth Show HUGE Gains

China’s Mountain of Money shows Blockbuster Gains

While America spends itself into trillions of dollars of debt, the opposite is happening in our favorite investment destination, China. Beijing has just announced that its cash reserves have soared past two-and-a-quarter trillion dollars. No nation has ever piled up that much cash.

The increase in reserves for the third quarter was a breathtaking, coming in at $141 billion. That’s an especially striking number because it comes in the midst of a global recession and trade slump. The increase in reserves in the third quarter was substantially larger than China’s trade surplus for the quarter of $39.27 billion.

The third quarter rise follows an even larger surge of $177.87 billion in reserves in the second quarter. Again analysts are wondering how this is possible when Chinese exports are still down year-over-year, although the slump is easing.

China’s trade surplus shrank by tens of billions of dollars this year because of the collapse in global demand. But China’s imports, especially resources and commodities recovered quickly as the government’s stimulus program and heavy bank lending kicked infrastructure programs into high gear.

The monthly trade surplus for September shrank to $12.93 billion from $15.71 billion in August. Exports were down 15.2 percent from a year earlier but the decline in imports narrowed to a mere 3.5 percent. This trend should be shrinking Beijing’s immense hoard of cash, but it’s not.

Indications are that investor confidence in China has returned. Money is pouring in from capital sources abroad to take advantage of the continuously growing economy.

The rebound of the Shanghai Stock Market has boosted investor confidence, restoring the China market to its status as one of the best-performing in the world. Hong Kong investors are playing the Shanghai market in increasing numbers. Figures from the Hong Kong Monetary Authority show yuan deposits in the territory rising every month since May. Hong Kongers must use yuan to trade in Shanghai, so the increase in yuan holdings in the Special Administrative Zone is a significant signal.

Chinese real estate prices also continue to boom, making it an arena ripe for speculation.

China still faces the problem of where to put so much foreign currency. For the time being, most of its reserves are still being put into U.S. Treasuries, effectively buying U.S. debt, despite the decline in the value of the dollar.

One effect the declining dollar is, ironically, to help increase the value of China’s foreign reserves in other currencies. The rises in the euro, the yen and the British pound have helped China balance the shrinking value of its U.S. assets.