Whither to Stash the Great Haul of China?

Sunflower Tower, Beijing
Grokking wind chill
1320 hrs.

China has financed a huge part of the American consumer’s borrow-and-spend spree of the last two decades, to the point where the doomsayers are suggesting that the U.S. has in effect mortgaged its future – both economic and political – in return for a few shiny trinkets.

At the same time, of course, the Chinese look at the Blackstone fiasco and the sub-prime meltdown and wonder if they are the ones being played for suckers, watching their invested dollars disappear as the dollar plunges and the American financial system looks a lot less stable than it once did.

James Fallows, sophomore China-hand and probably one of the most astute observers of the American political system, has jumped on the issue in his piece in The Atlantic this month, “The $1.4 Trillion Question.” Well worth the read, it provides grist for anyone who wants to understand why (although not “how”) the nature of the Sino-American relationship must change (and soon) and what that is going to mean for American lifestyles and for the men responsible for a the world’s largest hoard of cash.

Here’s what gets me. Warren Buffett’s company Berkshire-Hathaway piles up $1 billion a month in excess cash, and Warren says he has problems figuring out where to effectively invest that. And he’s arguably the smartest guy in the game. The people at China Investment Corporation have a US$1.4 trillion pile of money that is growing at an estimated $1 billion a day.

Fallows makes the point that China’s well educated, brilliant, and determined financial leaders want very much to do a great job with this cash. What is clear to us here in the Hutong is that they are going to be writing an entirely new chapter in the history of investing as they attempt to do so.