Better wealth management
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The global financial crisis has offered China a good opportunity to review its ability to manage its increasing national wealth.
During the past three decades China has developed into the world's largest foreign reserves holder and net capital exporter from a country that lacked reserves and foreign investment. The country has changed from being a debtor to become the world's second largest creditor.
This has had a profound influence on China's participation in globalization, but it has also brought into stark relief the country's current dilemma.
China's foreign reserve system has added huge pressure to its issuance of money. The country urgently needs to change its long-established foreign reserves management model and work out a long-term strategy for national wealth management.
By the end of 2009, China's foreign reserves had increased to $2.4 trillion, nearly 30 percent of the $8.1 trillion world total. In comparison, Russia holds nearly 7 percent of global foreign reserves and other emerging economies, such as India and the Republic of Korea each possess nearly 4 percent of the world's total. At present, emerging economies hold more than 50 percent of world's total global foreign reserves.
Compared with the creditor status of many emerging economies, almost all developed countries have become debtors in recent years. By the end of 2009, the total global foreign debt amounted to $56.9 trillion, of which the United States, Japan, the United Kingdom, Germany, France, and other European countries owed the lion's share. The US's foreign debt was 23 percent of the global total. Such an unbalanced global creditor-debtor structure between emerging and developed economies has been largely the result of the West-dominated financial and industrial division of labor.
Almost all kinds of global financial products are issued by the US and denominated by the dollar. The purchases of large volumes of US bonds by emerging economies as part of their official foreign reserves have contributed a great deal to the US' fiscal deficit and its debts financing.
With their net foreign credit rapidly expanding, emerging economies should find more effective investment outlets for their enormous foreign reserves so as to improve their earnings.
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