Why doesnamp;#39;t China have huge forex reserves put its capital in use? -

China is supposedly accumulating huge foreign exchange reserves. I wonder why a country which is still poor and in need of infrastructure would lend so much money to the US keeping so many Treasury bonds instead of investing it China is accumulating large positions in US Treasury bonds and notes. Why? Because they export $billions of goods to the US and get $ in return, which must be converted to local Chinese RMB (yuan) to use locally. So the government ends up with a lot of US$, which it invests in the safest securities around - US gov t bonds and notes. they have also been diversifying into Euro gov t bonds....but mostly $ since they accumulate huge excesses in $ each year. They have begun some application of this capital to other investments - recently they announceed they would take a 10% stake in the private equity firm Blackstone when that firm floats an IPO this summer. They have also made runs at buying some oil companies. They have begun using the capital to finance expanding their overseas oil reserve holdings - by purchase and by exploration. I believe that once they feel that they want to mailny continue their internal build-out of infrastructure - this will yield enormous internal efficiencies in their own economy. For example, 40% of the world s concrete is used in China, as is 20% of the world s copper. That s a lot of hi-rises, roads and wiring. Once they direct their economic resources more to acquisition and growth outside China, there will be a huge bidding war for assets around the world. Their movement of hundreds of billions of $ from cash reserves (US bonds) into the global equity will probably fund a nice stock market run, sometime after 2010. As for them profiting from slave labor, we in the US and Europe have also profited massively. Every consumer around the world has benefited by the lower cost of consumer goods because China has been able to be the world s low-cost volume producer. To appreciate the dollar, to keep their currency artificially low against the US Dollar. That makes their exports cheaper. The only reason that China cannot use its huge foreign exchange reserves as productive capital is that it does not want to import more than it currently does. Had China wanted its poor to eat and drink imported and enjoy travel abroad, China cannot spend the foreign money she earns through exports, China would have not to keep huge suroluses. If consumptiuon does not grow, how will investment requirement increases. China s economic success has been subsidized by the USA. We have paid good money for access to their virtual slave labor. In return, China has made sure that we have access to cash when needed. It s basically our own cash coming back to us. China knows that it needs American technology and American money in order to move forward. That s why it keeps trying to steal our technology. So China keeps us happy so that we don t cut them off. You scratch my back...etc. As for the infrastructure: the Chinese still do not have that much money considering their large population. To Westernize the entire infrastructure would be impossible. So they pick their spots. They have made some cities like Shanghai fairly modern and clean. This has allowed them to attract a great deal of foreign investment. Also, the politics of the Communist party do not allow for things to happen quickly, such as construction projects in out of the way places. Communist regimes are far more corrupt than our own system.