China Starts Spending Some of Their U.S. Cash

China has worked hard over the past few years to build-up a massive treasure chest of US securities, almost $846 billion at last count.

Now, it appears they are trying to spend some of it.

"China's top offshore oil producer CNOOC Ltd agreed to pay $1.1 billion for a stake in a U.S. shale oil and gas field, testing the market for the first time since its 2005 failed bid for Unocal.

Most of the outbound acquisitions by China's oil firms have been in risky areas such as Africa, which Western rivals have avoided, or in locations with aging assets.

Now they are also eying the United States, which was once deemed off limits to the Chinese due to protectionist sentiment."

China's prior attempt to purchase US oil and gas assets (specifically, the shares of Unocal) failed back in 2005, so it is not a given that their latest parlay will be approved by Congress.

Having these US-based assets owned by the Chinese should be no cause for concern to Americans, and should simply be viewed as an attempt by China to diversify their vast holdings of foreign currency.

Frankly, this is going to be a recurring them in the future, as holders of the US debt that is being issued with abundance attempt to swap that investment for real, tangible assets located in the US.

China Gives Pass To Congress

China recently passed up a "golden" opportunity to browbeat the US Congress in to reigning in federal spending and in effect stop forcing the Federal Reserve to monetize the US debt.

"China on Wednesday ruled out the "nuclear" option of dumping its vast holdings of U.S. Treasury securities but called on Washington to be a responsible guardian of the dollar.

In the third in a series of statements explaining its work to the Chinese public, the State Administration of Foreign Exchange sought to allay concerns in the outside world that arise whenever Beijing shifts its holdings of U.S. government debt.

"Any increase or decrease in our holdings of U.S. Treasuries is a normal investment operation," SAFE, the arm of the central bank that manages China's official currency reserves, said.

It said it constantly adjusts its portfolio to maximimise returns, and any changes to its U.S. Treasury portfolio should be seen in that light and not interpreted politically.

In a series of questions and answers posted on its website, www.safe.gov.cn, SAFE asked rhetorically whether China would use its $2.45 trillion stockpile of reserves, the world's largest, as a "nuclear weapon".

SAFE said such concerns were completely unwarranted."

Exercising the "nuclear option" would probably do as much harm to China, at least in the short term, as it would to the US. That is because selling its enormous reserve of US Treasuries would flood the market, causing their overall value to plummet.

However, a plummeting value ultimately to zero is the long-term fate of US Treasuries anyway.

As a result, China would have been better served demanding that Congress get its fiscal house in order and stop running budget deficits, so as to protect its investment in the Treasuries that it currently holds.