NEW YORK – China now sits atop $2.4 trillion in foreign-exchange reserves, the largest stockpile of any country in the world (Japan stands in second place with $1 trillion). But this bounty comes with one big headache: where should Chinese Communist Party officials park all that money?
International bankers estimate that roughly two-thirds of Chinese reserves have been invested in dollar assets. In other words, China owns a huge chunk of America’s ballooning debt. Chinese reserves invested in these conservative financial instruments are relatively safe, but they yield little return. They have, however, helped support China’s economy by allowing Americans to run up consumer debt by buying more Chinese goods than they rightfully need.