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Asia Economy Last Updated: Nov 3, 2010 - 5:51:34 AM

China holds only 9% of US sovereign debt contrary to misperceptions; China's export surge is also subject to misinterpretation
By Michael Hennigan, Founder and Editor of Finfacts
Nov 2, 2010 - 4:40:22 AM

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Li Changchun (r), a member of the Standing Committee of the Political Bureau of the Central Committee of the Communist Party of China, attends a breakfast meeting with Irish Enterprise, Trade and Innovation Minister Batt O'Keeffe in Dublin, Sept. 27, 2010.

China holds only 9% of US sovereign debt contrary to misperceptions; China's export surge is also subject to misinterpretation

China holds only 9% of US sovereign debt contrary to misperceptions and scare scenarios that the US risks being beholden to the reemerging Asian giant (see CNBC video clip below). The story of the exports surge is also not what it may seem to those who go with the flow of conventional wisdom.

Apparent facts become the received wisdom through repetition despite not being  true and commentators repeat them because it's easier than verifying them.

The Japanese are big savers, which they are not. The data will show they were in 1990 but that is history. Germans are often referred to as saver outliers in Europe but why did Italy survive the financial crisis relatively unscathed, despite its high public debt? 

It is also common to use a foreign comparison to support an argument. The facts can be true but not relevant. More common is to use selective facts or examples as a domestic audience would not likely know what is true or not.

In August, China held $868.4bn worth of US Treasury securities, down from $936.5bn in August 2009.

The total outstanding US public debt was $13,668,825,497,341.36 at the time of writing this article.

China also holds about $376.3bn of the bonds issued by agencies guaranteed by United States government, such as federal mortgage guarantors Fannie Mae and Freddie Mac, which account for almost 7% of the total bonds issued by the mortgage firms.

In early September, the European Chamber of Commerce said in a report that China relies on compulsory certification schemes to regulate its large and growing market. Such practice unduly restricts access to the Chinese market for European companies in a range of key industries such as the automotive, auto component, IT and telecommunication equipment, healthcare equipment, electro-technical and power transmission industries. In the service sector, licensing requirements continue to exclude foreign companies from entire sectors. Nearly ten years after China’s WTO accession, and despite clear commitments to increase competition in service sectors, European companies are still denied fair market access to several of them, the chamber said.

Days later, Chinese vice president Xi Jinping, who is expected to become president in 2012, said in a speech in Xiamen in southeast China's Fujian Province, that the sustained and fast development the Xiamen special economic zone has achieved since its establishment 30 years before, proves that developing an open economy is the right thing to do and illustrates the importance of attracting foreign investment and conducting mutually beneficial cooperation.

Xi said in 2009, China attracted a total of US$90bn in foreign investment, ranking it the second in the world. In the first half of this year, China approved 12,000 new foreign-invested enterprises with a paid-in investment of US$51.4bn, up by 19% and 21% year-on-year respectively. Also in 2009, domestic investors from China made direct investment in 111 countries and regions, and China's outward direct investment in non-financial sectors totaled US$17.8bn, which represents a 44% year-on-year increase.

He said by July 2010, a total of 698,000 foreign-invested enterprises had been established in China, registering a paid-in capital of US$1.05trn. These enterprises account for 22% of tax revenues, 28% of added industrial value, 55% of foreign trade, 50% of technology imports and some 45m jobs.

Discussing the risks of borrowing from China, with Tom Schatz, Citzens Against Government Waste, and Keith Boykin, The Daily Voice:

Exports account for over 40% of GDP (gross domestic product) in China and Germany; 12% in the US and 18% in Japan.

However, in common with Ireland, China has a dual trading system with foreign enterprises responsible for more than half its exports and this rises to over 80% in the consumer electronics area. 

For example it has been estimated that if China's Apple IPod's export value is converted to value added by removing its export content, only 2.6% of the IPod's gross export value remains.

The domestic content of trade processing exports has been estimated at 18.1% compared with for traditional products such as textiles and shoes at 88.7%.

The share of processing exports in China's total exports has risen from 30% to 53% in the period 1988-2006.

If only the domestic share of its content is included in China's exports, its export/GDP ratio fall to 21% (pdf.)

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