China’s $2Trillion+ (Dollar) Dilema & How You Can Potentially Profit From It

Quick, guess the largest bank in the world in terms of how much cash it has to loan out and how well capitalized this bank is?? Is it Citigroup? How about JP Morgan? What about Bank of America? Maybe Wells Fargo? Ok, how about HSBC bank?

If you guessed any of those banks or any other publicly traded banking corporation/company you’d be wrong! The largest bank in the world is now the Chinese Government! Or put another way, the People’s Republic of China is now the largest bank on Earth! I know, surprising right?

China has over $2 trillion in wealth it has accumulated for decades from its trade surplus with other countries all over the globe and this number is probably going to keep growing each and every month unless China starts consuming a lot more of its own production. This is a massive amount of foreign exchange reserves (paper money again!) China is holding. China’s largest position is, of course, invested in dollars, US Treasuries and the US economy. China has been accumulating a large current account surplus for decades and the Chinese are looking for assets to buy with this money. Here’s a video from a few years ago documenting this: 

China is currently trapped in a very precarious position. In other words, they have way, way too many dollars/treasuries and yet they continue to get more and more of them each month and they can’t get rid of them fast enough! 

They are trying to slowly diversify out of these dollar and Treasury holdings without dumping all of their holdings at once. Dumping all of their holdings at once would crash the price and create a “run” on the dollar as traders call it.

China is trying to decide where to move/invest all of this cash into. This cash will play a very large role in China’s economic future and also the world’s economy as the Chinese investing this money into other economies in the world will help the world economy.Through its subsidiaries, the China Investment Corporation and the China Sovereign Wealth Fund, China decides where and who to loan all of its trade surplus money to.

Here are just a few of many examples of the loans and investment deals China has made around the globe in the last few years with its massive trade surplus:

• Petrobras gets $10 billion loan from Sinopec (China) in exchange for oil
• China Investment Corp buys large stake in Canadian Mining giant Teck
• China is investing heavily in Canadian Oil Sands projects
• China investing heavily in Australia

Here’s another breakdown of what the China Investment Corporation owns in terms of investments. 

                                                                             After watching most of these videos and reading some of these articles I have linked to, I think you should be able to notice a general theme among pretty much all of them. That general theme is China is buying LOTS of COMMODITIES (Natural Resources) when it does invest its foreign exchange reserves and China is diversifying that money into commodities globally.

Example of China investing in Australia:

 

 

China is even willing to invest extensively in Africa and politically unstable nations like the DRC:

The next question you should be asking is how can I profit off of this?  

The general answer is fairly easy (commodities), and I think I have made that pretty clear already in this article and in other articles I have written. The more specific answer though is not easy as it will require you to do some more extensive research into specific commodities, their supply/demand fundamentals and then decide between ETFs, commodity stocks, etc. Here’s a list of some of the commodities I like a lot long term based on their good and often improving supply/demand fundamentals and the China factor:

• Precious Metals (Gold, Silver, Platinum, Palladium)
• Base Metals (Copper, High Grade Iron Ore, Nickel, Zinc, Lead, Tin)
• Energy (Oil, Nat Gas, Coal, Uranium, Alternative Energy and the commodities needed for them; think Lithium)
• Food/Argiculture (Potash(topsoil problems worldwide), Agriculture, Food stocks/growers/farmers/ranchers
• Water (Water is now a commodity since clean, fresh drinkable water is in such short supply!)
• Infrastructure supplies (Steel, Stainless Steel, Aluminum, Manganese, etc.)
• Rare Earth Metals

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