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'China Dollar' Is Shaping US Financial Market
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China has just taken actions on bonds, and experts predict that more Chinese funds will flow into the United States, which may change the financial market in the US, according to Wang Chen from China Securities Times.


This April, China sold US$4.8 billion worth US treasury bonds, triggering much market speculation.


In June, the Ministry of Finance was approved to issue 1.55 trillion yuan (US$203.49 billion) special bonds to fund the State Forex Investment Co. In the same month, the US Blackstone Group received US$3 billion from China's new forex investment agency shortly after its public offering.


China holds 10 percent of US treasury bonds, equal to its one-day trading volume. The flow of Chinese funds into the US will be a long-term trend, which may help decrease the US's deficit.


Once more investors follow, the US's financial market may see an increase in the price of dollar, followed by the upturn of the real estate market and a speedup of the US economy, according to Wang.


In 2006, a large amount of Chinese fund entered the US. In November 2006, China bought US$3.3 billion worth corporate bonds, and this January, China bought US$11.4 billion government agency bonds. By January 2007, the percentage of US corporate bonds in Chinese foreign exchange assets rose to 26.9 percent from 9.1 percent in 2003.


Recently, the US long-term bonds yield rose sharply, which has attracted more international capital into the US.


The US may return to a rising inflation rate again after a recent mild drop, meaning the Federal Reserve may look to curb inflation.


Judged from the global financial market, the turning point of liquidity may happen in other countries and regions instead of the US, although it is hard to predict when to see the bull market and how long it will be kept in the US capital market, Wang said.


A rounded dollar flowing route is forming, when the "energy dollars" brought by oil price hikes is flowing into the East Asia, Wang said. He added that the forex reserves including "China Dollar" are flowing into the US, helped by the Chinese government's decisions of setting up the State Forex Investment Company and allowing private capital to invest overseas.


According to Wang, under such circumstances, the US may see the comeback of surplus liquidity, which may heat up the US economy and its financial market.


In addition, the US may face the pressure of excessive liquidity, and the Federal Reserve may be urged to increase interest rates to keep impacting the global financial market and monetary liquidity, he added.


(China Daily July 3, 2007)


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