The trouble with China

Very interesting. While I am a biased commentator, it would appear that there are weaknesses in China's armor:

Second, the rate at which China - which rivals some of the Middle Eastern SWFs in size - accumulates foreign exchange reserves is likely to fall, and in any case “China might have more important domestic uses for its money”, she adds.

China’s overheating, according to Choyleva, is likely to result in one or more of the following three developments: a sharp appreciation of the renminbi, a rise in manufacturing goods prices and a protectionist backlash .

“Taken together with weakening external demand as the US downswing intensifies, Japan stagnates and European growth slows, China’s current-account surplus explosion is unlikely to continue unabated in coming years.

“Moreover, in the face of weak external demand, Beijing is likely to turn the state-sector spending taps back on for fear of social unrest brought on by slow growth and rising unemployment.

So, Choyleva concludes, “the primary intended use of China’s SWF seems to be to support state-owned financial firms, not to maximise returns on China’s excess FX reserves.”

Financial crisis? Political turmoil? I hear my thoughts echoed.

Listening to: Feist - My Moon My Man