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July 27, 2007 / Mridul

Is China Looking To Manipulate Global Economy?

Higher interest rates haven’t stopped the world markets from soaring to new all-time highs. Markets in Asia and USA have touched their life highs and still analysts say that there is plenty of money waiting to be pumped in. The source of such huge liquidity flow (believed by many) is the trillion dollar forex reserves of China.

China has the world’s largest foreign exchange reserves accounting to more than a trillion dollars. That’s an instrument which, many fear, the Chinese government could use to fulfill its ‘national interests’. The US government has already expressed its fears about China’s huge forex reserves & the lack of transparency in its entire economic activities. US administration has also expressed the rightful reservations about China not allowing Yuan to be traded freely.

Recently China established a $200 billion dollars as part of its drive to earn higher returns by making riskier investments. The fund has already picked up a 10% stake in Blackstone Group for $ 3 billion dollars and now it is looking to fund Barclays’ bid for ABN Amro bank. China has already invested a great amount of money in buying out Africa’s oil rich fields which supply its oil hungry economy.

The thing to watch here are the places where this money is directed. China bought a 10 % stake in Blackstone which controls or has stakes in companies which have a central role in the development of the respective economies. Some of the companies that Blackstone has in its kitty are:

  • Texas Genco: One of the largest wholesale electric power generating companies USA.

The most interesting one, however, is Kosmos Energy whose operations are focused on oil and gas projects off the coast of West Africa.

Although China has assured the world leaders that it won’t use its massive reserves to manipulate the economic trends of the global economies but still Clay Lowery, the U.S. Treasury’s acting undersecretary for international affairs, has asked the International Monetary Fund and the World Bank to draft a best-practices guide to monitor the investment policies of sovereign wealth funds.

China is rapidly picking strategic stakes in companies in world’s major economies, with Blackstone it has got ‘access’ to many vital sectors like manufacturing & energy. It seems China has found a way to buy into the American companies without irking the American sentiments much. And while US is apparently busy in fighting wars for oil in the troubled Middle East, China is swiftly & effectively using its forex reserves advantage to buy out Africa’s yet-to-be tapped oil reserves.

The concern over China’s vast reserves is evident and the world leaders as well as the economists need to watch where & how China spends this money. It’s fairly clear that the leaders of the Communist government have big goals for their country and it won’t be a surprise if in the near future China follows Kremlin’s tactics of influencing the economic activities of other counties to achieve its own strategic goals.

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