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Monday, January 21, 2013

China Poised To Play Debt Card – For U.S. Land

Could real estate on American 
soil owned by China be set up as 
“development zones” in which 
the communist nation could establish Chinese-owned businesses 
and bring in its citizens to the U.S. to work?
That’s part of an evolving proposal Beijing has been developing 
quietly since 2009 to convert more than $1 trillion of U.S debt it 
owns into equity.
Under the plan, China would own U.S. businesses, U.S. 
infrastructure and U.S. high-value land, all with a U.S. government 
guarantee against loss.

Yu Qiao, a professor of economics in the School of Public Policy 
and Management at Tsighua University in Beijing, proposed in 2009 
WND has reliable information that the Bank of China, China’s 
central bank, has continued to advance the plan to convert China’s 
holdings of U.S. debt into equity owned by China in the U.S.

The Obama administration, under the plan, would grant a financial 
guarantee as an inducement for China to convert U.S. debt into 
Chinese direct equity investment. China would take ownership of 
successful U.S. corporations, potentially profitable infrastructure 
projects and high-value U.S. real estate.
The plan would be designed to induce China to resume lending to 
the U.S. on a nearly zero-interest basis.
However, converting Chinese debt to equity investments in the 
United States could easily add another $1 trillion to outstanding 
Obama administration guarantees issued in the current economic 
As of November 2012, China owned $1.17 trillion in U.S. Treasury 
Concerned about the unrestrained growth in U.S. debt under the 
billion in August 2008, prior to the massive bank bailouts and 
stimulus programs triggered by the collapse in the U.S. mortgage 
market, dwindled to $5.96 billion by March 2011.
Treasury bills are short-term debt that matures in one year or less, 
sold to finance U.S. debt. Holdings of Treasury bills are included in 
the $1.17 trillion of total Treasury securities owned by China as of 
November 2012.
In addition to a national debt in excess of $16 trillion, the U.S. 
including Social Security and Medicare benefits scheduled to be 
paid retiring baby boomer retirees in the coming decades, with 
unfunded obligations showing no sign of being reduced with 
Congress at a deadlock over reducing federal government spending.
Yu Qiao observed that if the U.S. dollar collapsed under the weight 
of proposed Obama administration trillion-dollar budget deficits 
into the foreseeable future, holders of U.S. debt would face 
substantial losses that the Financial Times estimated “would 
devastate Asians’ hard-earned wealth and terminate economic 
“The basic idea is to turn Asian savings, China’s in particular, into 
real business interests rather than let them be used to support U.S. 
over-consumption,” Yu Qiao wrote, reflecting themes commonly 
suggested by Chinese government officials. “While fixed-income 
securities are vulnerable to any fall in the value of the dollar, equity 
claims on sound corporations and infrastructure projects are at less 
risk from a currency default,” he continued.
The problem is that, in a struggling U.S. economy, China does not 
want to trade its investment in U.S. Treasury debt securities, with 
their inherent risk of dollar devaluation, for equally risky 
investments in U.S. corporations and infrastructure projects.
“But Asians do not want to bear the risk of this investment because 
of market turbulence and a lack of knowledge of cultural, legal and 
regulatory issues in U.S. businesses,” he stressed. “However if a 
guarantee scheme were created, Asian savers could be willing 
toinvest directly in capital-hungry U.S. industries.”
Yu Qiao’s plan included four components:
*China would negotiate with the U.S. government to create a “crisis 
relief facility,” or CRF. The CRF “would be used alongside U.S. 
federal efforts to stabilize the banking system and to invest in 
capital-intensive infrastructure projects such as high-speed railroad 
from Boston to Washington, D.C.
*China would pool a portion of its holdings of Treasury bonds 
under the CFR umbrella to convert sovereign debt into equity. Any 
CFR funds that were designated for investment in U.S. corporations 
would still be owned and managed by U.S. equity holders, with the 
Asians holding minority equity shares “that would, like preferred 
stock, be convertible.”
*The U.S. government would act as a guarantor, “providing a 
sovereign guarantee scheme to assure the investment principal of 
the CRF against possible default of targeted companies or projects”.
*The Federal Reserve would set up a special account to supply the 
liquidity the CRF would require to swap sovereign debt into 
industrial investment in the United States.
“The CRF would lessen Asians’ concern about implicit default of 
sovereign debts caused by a collapsing dollar,” Yu Qiao concluded. 
“It would cost little and help the U.S. by channeling funds to 
business investment.”
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