| China is the largest developing country in the world. In recent years, due to rapid economic development, the surplus of current account and capital account causes huge foreign exchange reserves expanding. China foreign exchange reserve is mostly composed of dollar assets, especially USA government bonds. In 2008 September China surpassed Japan to become the largest creditor country overseas of America. China possesses such a large number of America bonds, whose impact on the Chinese economy should not be underestimated. We should analyze the influence and risk, and then put forward the positive countermeasures.Firstly, this paper describes the historical formation process and current situation of the American bond, to analyze the real cause of forming huge USA national debt. Although it is said that America bonds was started in the war, American rapid growth of economic development accounts for the debt expanding. Secondly, the attention is paid to the situation and reason of China holding USA bonds and the result is the growth of foreign exchange reserves. It is also related to the U.S. debt itself advantages, the dollar’s status and China’s political and security factors. However, the risks that China faces include the diminution in value of assets, too high opportunity cost, the economic and political risk kidnapping and etc.The third part focuses on the time series model to study the impact of the huge USA bonds on our economy. It comes to that the increase in China’s holding US debt will lead to the increase in money supply, the RMB appreciation, rising inflation and foreign direct investment.The final conclusion is that China holding USA debts bring major adverse effects, so our government should gradually reduce American bonds. The most importance is good management of the foreign currency reserve assets. The paper finally puts forward how to manage China foreign exchange reserve assets from four aspects so as to avoid risk of America’s debt. |
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