Monday, January 10, 2011

China Owns Lots of Paper

Bloomberg details:

China’s foreign-exchange reserves climbed 18.7 percent to a world-record $2.85 trillion at the end of 2010 from a year earlier and domestic lending exceeded the government’s full-year target. The currency holdings, reported by the central bank on its website today, were bigger than the $2.76 trillion median estimate in a Bloomberg News survey of nine economists.
How fast have reserves been built? 26.4% annualized since 1978 (reserves crossed $2 trillion in 2009 and $1 trillion in 2006).

This level of growth will be mathematically impossible to continue at some point (in my view sooner than later). The current $2.85 trillion is a whopping 20% of US GDP and 5% of World GDP, but if growth were to continue at this pace it would grow to 50% of US GDP by 2015 and 125% by 2020 (assuming the US grows at a 5% / year nominal pace).

So what is much more likely in my opinion? In the years to come perhaps a slower growing China, a much stronger Chinese currency, or a less export driven / more internal demand driven China... or perhaps all three.

Source: Chinability