The Richest Nation on Earth?

MANIFESTO

When dealing with large issues, public perception and reality are always a little out of sync: just look at America’s reaction to global warming. So I have to wonder how it would challenge Joe Six-Pack’s view of America’s place in the world if he knew the Chinese People’s Liberation Army was staring down at him from the moon.

On the financial front, the Chinese government announced the formation of a new agency to oversee the investment of the largest stockpile of wealth the world has ever known: China's $1.1 trillion in foreign currency reserves. The reserves, earned through massive trade imbalances, are held now mostly in low-yield US Treasury bonds, allowing the US Government to finance growing budget deficits while keeping interest rates low. Some estimate the fund will be between $200 and $400 billion at its inception; money that will more than likely be used to invest in resources and raw materials Chinese manufacturing desperately needs. For comparison sake, the largest mutual fund in the U.S., the Magellan Fund, has a "meager" $50 billion in assets. The new Chinese fund will be roughly 4 to 8 times larger than anything ever seen in the US financial markets. At the same time, and after 14 years of debate, the government made sweeping legal reforms to protect personal property from state seizure for the first time since the Revolution. China has also decided to eliminate tax breaks for foreign investors, raising the foreign investment to the same rate paid by domestic enterprise. That is, unless you are investing on long-term infrastructure projects. All three are key signs that China is willing to reform ideologically to compete in a global economy.

Meanwhile, here at home, America’s current account, the broadest number available to measure trade, was over $856 billion in the red for 2006; meaning that each and every day of the year a little over $2.3 billion left the US and ended up in other countries. That number is higher so far this year and China alone has chalked up a surplus of almost $40 billion in the past two months, about $28 billion more than the same period last year. At that rate, China’s exchange reserves will top $1.3 trillion by the end of 2007.

So who is the richest nation on Earth?