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Yoshikami: China's Got Cash!

The secret is out. After years of whispers in the economic dark President Obama said out loud what we have all known was a fundamental truth: China is the banker to the United States and buying the debt that keeps the American economy moving forward. This is globalization at work though a condition not desirable for the United States.

People walk at a shopping street Tuesday, May 1, 2007 in Shanghai, China. May Day, on May 1, is traditionally the day socialist countries honor their workers, but in modern communist China the day kicks off a week-long Golden Week holiday which the government hopes will encourage its citizens to travel and spend, thereby boosting the economy. (AP Photo/Eugene Hoshiko)
Eugene Hoshiko
People walk at a shopping street Tuesday, May 1, 2007 in Shanghai, China. May Day, on May 1, is traditionally the day socialist countries honor their workers, but in modern communist China the day kicks off a week-long Golden Week holiday which the government hopes will encourage its citizens to travel and spend, thereby boosting the economy. (AP Photo/Eugene Hoshiko)

Why is China able to fund U.S. debt? Simply put, China has the money.

Despite their reliance on exports to drive their economy they carry massive surpluses. This is evidenced by the ease at which they implemented a dramatic stimulus package to fund the internal consumption. No debt raising was necessary as the Chinese government simply funded their economic package from cash on hand.

With a growing middle-class and ambitious desire to take a leadership position in the world economy and a labor pool eager and willing to work, China is well positioned to a major economic power. The outcome long predicted by sage experts is happening right now. China as a global economic power has arrived.

Still, while China's future looks bright, there will certainly be bumps along the way. The Shanghai Composite Index was down almost 65 percent at one point last year. But this does not diminish the fact that the Chinese economy is poised for a rebound. And there are signs that this is occurring now.

Having cash in the bank when everyone else wants to borrow, is certainly a great position to be in. It's a position of strength. China with its massive surpluses and an economy rumbling to life is in that enviable position right now.

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Investors that recognize and embrace the inevitable growth of the economic superpower will likely reap the profits as China leads the world out of this economic meltdown.

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Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). Michael oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. He appears regularly on CNBC and CNBC Asia and can be reached directly at m@ycmnet.com.


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