Hank Paulson had to undertake (another) difficult assignment this week with a visit to China. The meeting is technically an annual summit between Chinese and US economic representatives, but the agenda is much more pressing this time round.
Having belatedly woken up to the fact that China is one of the largest holders of US government debt, Paulson is in effect meeting one of his chief creditors. An ever-awkward discussion revolves around the yuan valuation.
The Bush administration has been keen to press for an appreciation against the dollar, thus encouraging American exports. Yet in the current climate this is a bit futile, given that China's economy is decelerating fast. As most Chinese citizens have no affordable access to welfare systems (a visit to hospital will easily cost more than a whole year's wages), it's naive to expect a material fall in the savings rate.
It's doubtful that the Chinese will be enthusiastic buyers of further US corporate assets for now, given the disasters of some of their investments (e.g. Blackstone). And even if they did want to tip their toe in again, will the US be a bit more open to this capital this time. Remember the xenophobic reaction to Sinopec's 2005 offer to buy Unocal?
You can bet the Chinese haven't, Hank.
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