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Apr 14th 2011 | HONG KONG | from the print edition Tweet
from the print edition | Finance and Economics
China's foreign reserves
Who wants to be a triple trillionaire?
Window-shopping with China’s central bank
BY THE end of last year, China's foreign-exchange reserves
amounted to $2.85 trillion. Although China ran a rare trade deficit
in the first quarter of this year on April 14th the country's central
bank released new figures showing that its reserves at the end of
March had soared above $3 trillion.
China’s central bank has a lot of money but not a lot of
imagination. It keeps a big chunk of its reserves in boring
American government securities. That means it can count on
getting its dollars back. But it frets about how much those dollars
will be worth should America succumb to inflation or depreciation.
So what else could China do with the money? Instead of the dollar, China might fancy the euro.
China could buy all of the outstanding sovereign debt of Spain, Ireland, Portugal and Greece,
solving the euro area’s debt crisis in a trice. And it would still have almost half of its reserves left
over.
It might, alternatively, choose to abandon debt altogether and buy equity. China could gobble up
Apple, Microsoft, IBM and Google for less than $1 trillion. It could also follow the lead of those
sheikhs and oligarchs who like to buy English football clubs. According to Forbes magazine, the
50 most valuable sports franchises around the world were worth only $50.4 billion last year, less
than 2% of China’s reserves.
Another favoured sink for the world’s riches is property. Perhaps China should buy some
exclusive Manhattan addresses. Hell, why not buy all of Manhattan? The island’s taxable real
estate is worth only $287 billion, according to the New York City government. The properties of
Washington, DC, are valued at a piffling $232 billion. China is accustomed to being Washington’s
banker. Why not become its landlord instead?
China could also allay its fears about energy, food and military security. Three trillion dollars
would buy about 88% of this year’s global oil supply. It would take only $1.87 trillion (at 2009
prices) to buy all of the farmland (and farm buildings) in the continental United States. And China
could theoretically buy America’s entire Department of Defence, which has assets worth only $1.9
trillion, according to its 2010 balance-sheet. Much of that figure is land, buildings and
investments; the guns, tanks and other military gear are valued at only $413.7 billion.
These frivolous calculations illustrate the vast scale of China’s reserves but also the great
difficulty it faces in diversifying them. Any purchase big enough to warrant China’s attention will
also move the market against it. China can buy almost anything for a price—but almost nothing
for today’s price.
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