mm asked in Social ScienceEconomics · 9 years ago

why is china buying other country's debts?

Why is China buying so many debts from other country? China is still a developing country with growing domestic problems such as social inequality and the widening gap between rich and poor? Why not spend the money on solving such issues and preserving their culture? Why waste money buying debt from Spain, US, Greek, Hungary etc? What benefit will they get from that? What is one day all the countries go into default...wouldn't China be doomed? Wouldn't that say cause WW3?

I just don't understand,, how can a country go bankrupt? Wwhat measures must have pushed them into going in debt? How can a developing country manage to not go into debt and buy in others?

China may appear rich on the outside but I am frustrated at the shallowness displayed by most of my people- shallow, materialized and pathetic. They wasted millions of dollars just for New Year concerts...what is going on with the world. How is it fair that some people suffer and have so little and some burn away cash and have so much?

I am no economist but I have being taking note of my country's growth but I am still baffled to why suddenly, it is not 'rich' enough to buy in debt?

BTW, I object to the whole china peril thing, I don't think that having someone else's debt will be a way to control...

I'm just curious


7 Answers

  • 9 years ago
    Favorite Answer

    The U.S. has a somewhat checkered history with China. The U.S. was at odds with China during its communist rule. This tension nearly culminated in all-out war during the Clinton administration, when the U.S. vowed to defend democratic Taiwan. Since the fall of communism, relations between the U.S. and China have cooled, fostering in a new era of economic alliance. Now, although our economy and our lifestyle greatly benefits from the cheap labor in China, the human rights policies and environmental issues clash with the U.S. standards. The government in China is somewhat of an anomaly; although China has a market economy, freely trading with foreign nations such as the U.S., there are many restrictions on free speech, immigration, religion and freedom of assembly.

    The danger in the U.S. coming into a dispute with China is the massive financial clout China has over the states. As a source of much of the spending power of the U.S. government, as well as affordable goods for consumers, the severing or exploitation of these economic ties could wreak havoc on the U.S. economy--freezing credit, removing capital from the system, sending prices skyrocketing, bankrupting businesses and eliminating jobs--essentially causing the U.S. to fall into a depression. Because of this, dealings with China are more delicate and critical than ever.

    The answer is: Power

    Source(s): Read more: Why Does China Buy U.S. Debt? |
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  • A link would help - for verification.

    However, China is buying up debts like any other business does - in the hope of gathering some cash through enforcing debts unpaid. They would buy the debts in bulk at a fixed price, and then work to get as much back as possible, using cheap labour paid on results - which often means nothing or very little..

    To me - it is a lot of hard work and a fool's game - most debtors will be long gone now and the chances of getting money from them are small. If they've bought corporate debt, you can bet there is no money available to pay it - corporations are smart like that - only the head honchos get away with a few million for pocket money while the shareholders starve in the superannuation years.

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  • 9 years ago

    These are a lot of questions and it would go beyond this forum to answer them all. In simple terms: China is an export oriented economy with a huge trade surplus. That means they export more than they import. As a result, the Chinese export companies will receive US$ to pay for the goods and services that they export.

    They need to convert these US$ into the domestic currency, the Yuan (CNY), to pay salaries and raw material. Since China exports more than they import, there will be an excess demand for the domestic currency, pushing the CNY/US$ exchange rate up.

    Such an appreciation of the CNY, however, would make Chinese exports more expensive and make the Chinese economy less competitive in the international markets. To avoid such a situation, the Chinese central bank interferes in the foreign exchange markets, buying the excess US$ against the CNY, maintaining a constant exchange rate.

    This results in massive US$ holdings of the Chinese central bank that they need to invest in the international capital markets. The largest and most liquid market with the lowest risk is the US Treasury bond market. This makes the US Treasury bonds (= US government debt) the preferred assets for the Chinese to invest their large currency reserves. Increasingly, the Chinese central bank is diversifying their investments into other countries debt as well.

    I think the Chinese government is well aware of the development needs of the country and the income and wealth gap between regions and ethnic minorities, and they make a significant effort to achieve a more balanced economic development. The fact that they have such large foreign currency reserves that they need to invest into foreign debt is more an unintended consequence of the government's efforts to achieve a fast growing economy.

    The behavior of the individual consumer in terms of materialism and shallowness is a consequence of the free market economy and more a question of deteriorating social values than a question of economics.

    I think this Bloomberg article by the Prime Minister of Singapore addresses the China issues very well:

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  • gram
    Lv 4
    3 years ago

    you have it mixed up... the U. S. government runs deficits and has a deficit... their deficit is nicely over $10 trillion funds. people ought to purchase that debt... China owns over $a million trillion now, Japan has around $800 billion, the middle-East has around $800 billion, and that i don't be attentive to who owns something... in all probability inner maximum communities and persons. The commerce deficit is led to by u.s. importing greater effective than that is exporting. that is a touch large imbalance that has no longer been fixed regardless of the worldwide recession. China is one reason - they make a ton of inexpensive products. How are they procuring them? The bonds are auctioned off, so all people can purchase them... Why might China purchase American debt? because of the fact america consumes their products which makes their financial device advance. that is a foul dating - u.s. is going deeper and deeper into debt (no longer basically government yet individual electorate) procuring chinese language products - and the chinese language finance the individuals with money they get from making the products.

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  • Anonymous
    9 years ago

    China is buying debts because they are a good investment. The go up in value, rather than down.

    You get a good long term return on them, and controlling another countries debts means that they cannot act against you in any substantial way. For example, China owns the lions share of America's treasury debts. This means that the value of the dollar is kept high. A high dollar and a low Yuan means that it is cheap for American's to import Chinese goods. Which means a lot more money for the Chinese economy as Americans keep shopping and keep China's export market strong.

    If China were ever to sell America's debts on the open market then the value of the dollar would plummet. This would make it very hard for America to buy the things that it needs. Like overseas oil. Which would effectively destroy the American economy and the standard of living for the average American. So, America cannot act significantly against China for fear of this threat.

    China has nukes, it sells weapons to all kinds of shady regimes, it's currently doing terrible things in Tibet, and it's backing up corrupt regimes in Africa. All kinds of things that America would normally get up in arms about. But Obama and Bush both kept their mouths tightly shut because China owned them.

    China is trading with Iran, North Korea, Zimbabwe, all of whom are on the top ten list of loony countries who persecute anything that moves, but America is saying nothing.

    Buying treasury debt means that there cannot be any substantial action against China from the US.

    BTW, "China Peril" is made up, there's no such thing. It's a throwback from the cold war used to scare people who watch Fox news into knee jerk reactions.

    China also only looks rich if you live in a coastal region such as Shenzhen or Shanghai. Or a nice port city up one of the larger rivers. They knocked some buildings down near my home to put in a new road. People came along and they took the bricks, knocked the mortar off and then took them away to be reused elsewhere. There was a lady who used to go through my garbage looking for plastic and cardboard to recycle. And there were people who couldn't afford to wash their clothes in hot water, so they got frostbite in the winter from had washing them in cold water.

    Buying overseas debt helps to stop this. The government is spending the tax money form the rich to buy foreign debt, which is keeping foreign countries buying Chinese goods, which are made by the Chinese poor. Without this the poor would be even worse off than they are.

    There will be no WW3, because if somebody tries to start one with China, China will sell their debts on the open market and destroy them without ever needing to use a weapon of war.

    This is true power. The power to stop wars by holding people's economies to ransom if they try to attack you. China will keep the peace without needing any soldiers.

    Source(s): My life and experiences in China.
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  • 4 years ago

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  • 9 years ago

    They have the money and power to.

    The Chinese work hard, take advantage of Western Countries' stupidities (the ideology of free trade), and in general they are a more unified with a common goal: to beat the Westerners.

    It is sad that the Western World doesn't have the will power to do anything...

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