China’s trade surplus with the rest of the world in October was just announced at a record $23.8 U.S. billion. Chinese exports jumped 30% in October and already China’s surplus for the year is one-third higher than last year.
The fourth quarter, which includes the Christmas season, is usually China’s strongest trade period. “Made in China” toys, clothes, computers, Christmas tress, and more are all shipping right now to retail stores across North America and Europe.
My, how the world has changed. Twenty, even ten, years ago, I don’t think anyone would have guessed China would become the world’s leading trade partner… with China stashing away billions of American dollars every passing month… and then using that money to buy American bonds. Certainly, just after World War II, this concept would have seemed an impossibility.
The question probably should not be will China own us. More likely, the question should be what will happen first: China owns us or the U.S. dollar will collapse?
China’s holding of American dollars, estimated to exceed a trillion next year, is a big problem for China because such liquidity in the Chinese economy is working against the Chinese government’s wish of easing growth and investment. It’s like clockwork: 10% annual growth in China. The government there would like to see somewhat slower growth so its people and infrastructure can cope with the growth.
For big investors, China has become a huge investment opportunity. Witness the latest Chinese bank to go public… with the offering being oversubscribed by a ration of 10 to 1. How will this unfolding story end? I believe the U.S. will need to lower its dollar aggressively to deal with the trade problem with China.
So yes, I’m in the camp that believes a lower American currency lies ahead: Many American investors and corporations investing in China and the remainder of the world would like just that to happen. Small investors like us need to ensure our portfolios get their fair share of the profits that lie ahead courtesy of a falling U.S. dollar. My message: Today, foreign investment makes big sense for American investors.