A new twist in the saga of what China is doing with its still mostly dollars foreign exchange reserves: Brian Jackson, senior strategist at Royal Bank of Canada, reckons that it is using them to stockpile commodities such as copper and iron ore as the voices in Beijing fearing the ever rising cost of Washington’s financial bailout will only push inflation higher and the dollar lower get more strident. “Increased spending on commodities represents a reallocation of China’s sovereign wealth away from the accumulation of financial assets,” Jackson said in a May 15 research note (here via Bloomberg ).
April’s imports of iron ore and copper were at record levels last month, not given the slowdown in growth what would be expected from underlying industrial demand, though Prime Minister Wen Jiabao said in March that China would take advantage of globally low commodity prices to stockpile natural resources. But long before that Wen had expressed his concerns about the dollar’s fall in value and its impact on the value of China’s foreign reserves (see “China’s Dollar Dilemma“). If Jackson is right, then the commodities stockpiling may be a more strategic than opportunistic move than it first appeared.