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March 9, 2007

New Chinese Agency to Invest Currency Reserves

China ups the pressure on star quarterback Hank Paulson by showing him he shouldn't count on the Chinese putting most of their eggs in the U.S. treasuries basket.

Finance Minister Jin Renqing:

''We can achieve more profit from the investments,'' Jin said at a news conference. ''We are now preparing the organization of this new corporation.''

A fine bit of statecraft, if nothing else, as the sale of any great amount of China's holdings of US treasuries -- a tremendous sum -- would very likely lead to its massive devaluation. Of course, Paulson understands that the Chinese are handcuffed as well. But how tightly? [In Chinese.]

UPDATE (March 16, 2007):

Wen Jia-bao in yesterday's press conference stated:

“I can assure you that by instituting such a foreign exchange reserve investment company, it will not have any adverse impact on US dollar-denominated assets,”

One hand (Jin) slaps the face, while the other (Wen) caresses it.

This is a characteristically Chinese technique of controlling an adversary at close quarters. I have observed that, in business, it does not issue from a perception of strength. Instead, one who perceives himself to be weaker attempts to keep the threatening party off balance with a display of contradictory ideas, showing both the ability to harm the stronger and the inclination to assist him.

Executives jockeying for territory and promotion use it against each other, as will a more than usually insecure manager with his staff. The statements made and actions taken by the weaker party in his own defense are themselves of little value.

Comments

Posted by: Dan Harris at March 10, 2007 1:38 PM

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