China Plans To Go Shopping

China's intervention in the foreign exchange markets - selling yuan for dollars to keep the yuan cheap - has resulted in a massive pile (over $1 trillion) of dollar reserves. Hitherto, China has mainly invested its dollars in US Treasury bonds, but the New York Times reports:

China will create a new agency to invest the country’s immense reserves of foreign currency, now totaling more than $1 trillion, the country’s finance minister announced today...
The new agency will be able to invest some of the money more diversely and aggressively, analysts said, with the possibility of hundreds of billions of dollars put into acquiring “strategic assets” — mines, oil fields, whole companies — around world, especially in developing countries in Africa and Latin America...

$1 trillion goes a long way - in fact, it exceeds the market capitalization of Wal-Mart ($197bn) , Exxon ($409bn) and General Electric ($355bn) combined. Hmm... That would be pretty good "vertical integration" if China bought Wal-Mart!

Back in the 1980's, many Americans were rattled when the Japanese purchased Rockefeller Center, but that's peanuts compared to what China could do with its reserves. Fortunately for our national nerves, they are expected to start small:

Andy Rothman, a strategist at CLSA Asia-Pacific Markets, said the government was likely to proceed cautiously and give the agency only a relatively small part of the reserves to work with at first, perhaps $20 billion. “It’s not going all of a sudden going to change the world,” Mr. Rothman said. “I think they are going to move very, very slowly in diversify what they are doing. Nobody should expect that suddenly they are going to invest $1 trillion.”

$20 billion will only get you, say, a General Motors ($17.5 bn) or a Ford ($15.1bn).