China Isn't As Hungry for America Anymore

In the last five years, China has spent as much as one-seventh of its entire economic output buying foreign debt, mostly American. In September, it surpassed Japan as the largest overseas holder of Treasuries.

This from the NYT on China's waning appetite for holding U.S. debt, which has given both the federal government and individual investors the ability to leverage almost exponentially while procuring (essentially subsidizing) interest rates that have been kept at historic lows. With this combination greed ferments, as anyone would expect, but the bigger worry is the skewed interest, and overall psyche of an entire financial system that has been misaligned for such a long period and able to exploit its position for far to long.  

But now Beijing is seeking to pay for its own $600 billion stimulus — just as tax revenue is falling sharply as the Chinese economy slows. Regulators have ordered banks to lend more money to small and medium-size enterprises, many of which are struggling with lower exports, and to local governments to build new roads and other projects. “All the key drivers of China’s Treasury purchases are disappearing — there’s a waning appetite for dollars and a waning appetite for Treasuries, and that complicates the outlook for interest rates,” said Ben Simpfendorfer, an economist in the Hong Kong office of the Royal Bank of Scotland.

Fitch Ratings, the credit rating agency, forecasts that China’s foreign reserves will increase by $177 billion this year — a large number, but down sharply from an estimated $415 billion last year.