On Brad Setser’s blog, (colleague of Roubini) I read yesterday that PBoC chief Zhou told Reuters that
““All central banks are trying to diversify,” he told Reuters on the sidelines of a European Central Bank conference in Frankfurt. “We have had a very clear diversification plan for several years.”
In the blog comment section, Michael Hampton notes that Zhou’s comment came on the heels of his Financial Sense article about the plans of Chinese bankers. He believes they have a plan to replace the US consumer (who is dwindling anyway due to the busting housing market) with African and Asian consumers.
China’s leaders are very educated, often engineers, and they are in power for more than 4 years, so they are not limited by short term results. They are well aware of the declining US consumer, and have plans to deal with it.
Hampton points out that the US blockage of the UNOCAAL deal almost caused a retaliatory move, but it was a wake-up call that to the Chinese, that their dollar holdings had limited use, and could not be used to buy assets. I also believe that, along with the Dubai ports deal block, was very bad for the long term dollar.
The plan is to get closer to Africa, trading investment in Africa with natural resources, keep close energy trading ties with Iran, and to appreciate the most powerful new consumer: the Chinese consumer, who is gaining 20% – 30% annually in spending power. “Their spending, together with that from African countries, and a still-rising number of customers in the Middle East and India, would allow China to keep growing, even as it lost a big share of exports to America.”
“the time had come to start selling those excess dollar reserves, and reinvesting the money in commodities, something China could use. And the time to do it was before others countries and speculative players like hedge funds caught on and started buying, and pushed the price up. The recent drop in oil, and other commodities, engineered as a prelude to the US elections, had provided a wonderful buying opportunity. Now was the time to strike.”
Then, right after Hampton published this article, Zhou made the Reuters comment. This is a wake-up call.
