Twofish's Blog

July 14, 2007

A Trillion Dollars really isn’t that much money

Filed under: china, economics, finance — twofish @ 5:36 pm

One big of data that suggests to me that the US-China trade deficits and foreign exchange acculmlation isn’t unsustainable.  The foreign exchange reserves for the PRC is about $1.2 trillion and the trade deficit is about $200 billion/year.  This is about the size and revenue of one of the major banks in the United States.  The State Financial Investment Corporation that the People’s Bank of China will create next year isn’t a particularly large financial institution by global standards.

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3 Comments »

  1. If you have to compare China’s trading performance with a typical commercial bank. The rough comparison of foreign reserve is cash, cash equivalents, and short-term investments; increase of foreign reserve is cash flow; export is revenue; trade surplus is earning. Comparing some of these metrics doesn’t make much sense. For instance, China’s “cash flow” grows very fast, but understandably a typical commercial bank will use extra cash to buy more non-cash assets and/or pay down debts. But if only look at their “revenue” and “earning”, it certainly is far bigger than any US banks.

    Comment by JXie — July 16, 2007 @ 4:41 pm

  2. Trying to figure out which metrics make sense and which one’s don’t is part of what makes this interesting. Thinking of the PBC as a financial institution point of view, I’d argue that surplus is “revenue” since that is what gets added to assets, and “earning” is the amount of money that the PBC makes off of the foreign exchange assets.

    The reason I think the comparison is relevant is that the reason that central banks have huge cash reserves is to prevent a repeat of the 1998 run, and to make sure that the have enough cash on hand to prevent a run and be able play against the private financial institutions. So the comparison in total assets I don’t think is irrelevant, since it gives you the idea of the size of the asset base that a government has to have in order to be able to balance private financial institutions.

    Comment by twofish — July 18, 2007 @ 3:45 pm

  3. I will just lay Citibank’s (C) numbers down and you make the call:

    Revenues (2006/2005): $147B/$120B
    Earnings: $21.5B/$24.6B
    Total Stockholder Equity: $119.8B/$112.5B

    If you ask me, PBC is far less leveraged than C, and far less successful as a financial entry for money making, which are totally understandable. But the former has roughly 10 times of the “firepower”, so to speak, as the latter.

    Comment by JXie — July 19, 2007 @ 6:27 pm


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