Is China Preparing for War?

An Analysis of Recent Moves By China Which May Signal Intentions To Invade Russia

This analysis will first look at recent developments concerning the Chinese economic and energy policies. This will be followed by an analysis of data concerning global oil consumption and peak oil. Finally, the data concerning China and the data concerning global energy and peak oil will be utilized to examine the possibility that China is preparing to launch a war against Russia to seize Russian far-east oil reserves.

The Chinese central bank holds foreign currency reserves that have reached $819 billion, a foreign currency reserve second only to Japan and expected to exceed that nation’s reserves this year. China has invested about three-quarters of this reserve in U.S. Treasury bills and other dollar-dominated assets. China’s purchase of Treasury bills, in additions to similar purchasing by Japan and other nations (predominantly OPEC members) is responsible for much of the value of the U.S. dollar, and China uses the purchases to keep its own currency — the yuan — undervalued, thus maintaining a balance of trade that vastly favors cheap Chinese manufacturing goods. This also has the effect of holding U.S. interest rates at low levels, besides keeping the dollar at a high value worldwide. Chinese currency reserves are growing at an average rate of $15 billion each month.

However, China is now poised to move much of its currency reserves away from dollars and into other currencies, including the euro, and into commodities purchases — predominantly oil. China’s State Administration of Foreign Exchange has said they will “actively explore more efficient use of our foreign exchange reserves.” This followed statements from one of China’s central bank monetary policy committee’s economist that “The general trend for the U.S. dollar is continually weakening.” The economist, Yu Yongding, continued, “Countries with huge foreign-exchange reserves will have their assets shrunken.” Finally, in July of 2005 China adjusted its own currency evaluation and increased the yuan by 2-percent against the dollar, and stated that rather than keeping with the system of the yuan’s value automatically shifting in accord with the U.S. dollar, the yuan would now fluctuate based upon numerous other currencies such as the euro and the Japanese yen.

These moves in China’s economy could signal significant dangers to the U.S. economy. A decreased need for dollars in China, and an increased reliance on other currencies, the value of the dollar will plummet and interest rates will rise. A sell-off by China of U .S. Treasury bills will likewise cause the value of those dollar-dominated assets to plummet, and could trigger a sell-off by other nations including Japan and OPEC members. The dollar last year recovered from a slow decline in value over the preceeding years, a drop partly triggered by the rise in value of the euro and the amassing of euros in central banks in several nations, including OPEC members Venezuela, Iran, and Iraq (which had shifted all of it’s Oil For Food funds at the U.N. — roughly $10 billion — from dollars to euros, and had broke from the OPEC standard of accepting only U.S. dollars for oil transactions).

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