Mr Luo, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said: “Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”
Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”
However, Mr Luo said Chinese officials would encourage its banks to finance domestic mergers and acquisitions rather than provide rescue finance to distressed financial companies in other countries: “There will be no bottom-fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books.”
Luo goes on to decry the repeal of Glass-Steagall and posits that additional regulation in the financial industry may not be the worst thing.
Reading this, a lot sticks out. Why can't the Chinese buy British, Japanese or European debt? Currency exposure isn't a concern anymore. Why can't they reinvest domestically? China is clearly trying to defend it's massive stash of US government IOUs but look for them to quietly move away going forward.