Out of ~ 3 trillion dollar reserves that China holds , 70 % are in the form of dollar denominted US Govt bonds. What it essentially means is that the Chinese govt has loaned out this amount to the US on an interest rate of about 2 %, which happens to be the bond coupon rate.With the value of dollar dwindling day by day and the Chinese currency overvalued significantly, China is indeed in a difficult spot.What more than the fact that its economy is export dependent with most of the consumption outside the country.Further the country is in the midst of a domestic crisis which is likely to increase in the times to come with the populace seeking more right to property and free speech. The best that can happen from our perspective is that the country will implode in the medium term and wouldn't be a threat to us.Let us do something to launch an economic warfare on this country.
Another thought that comes to my mind is that we must increase cooperation with this country à la Europe, with more of their business coming to India and ours going there, so that the stakes for each other are high against fighting a war. Both the countries can then prosper and provide a better quality of life to their people. In the mean time it makes sense to prepare and strengthen the fences because 'Good fences make good neighbours'.Any opinions..............
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