In The N Ews

How the Chinese Help American Home Buyers

This article describes how capital is flowing from China into the United States. Can you predict what would happen to the U.S. economy if these capital flows stopped?

China, of All Places, Sends Capital to U.S.

By Craig S. Smith Shanghai, China—A giant, developing nation bordered by an economic quagmire is an unlikely source of capital for the world's industrialized powers. But China, with fat trade surpluses and bulging foreign-exchange reserves, is buying U.S. government securities, especially Treasury bonds and bonds issued by Fannie Mae and Freddie Mac.

That's good for America. Such investments add liquidity to the U.S. housing market and help hold down U.S. interest rates. And China is likely to continue to buy a lot of U.S. debt for years to come.

Thanks to high domestic savings, a continuing inflow of foreign investment and tight controls on domestic spending, China is awash in capital. Last year's capital surplus . . . reached an estimated $67 billion.

China squirrels more than half of that away into foreign reserves, which are invested abroad. Chinese companies funnel much of the rest directly overseas through bank transfers—sometimes skirting Chinese capital restrictions to do so. So while the financial crisis has transformed the rest of East Asia into a

Their saving helps us get cheap mortgages.

Their saving helps us get cheap mortgages.

capital-sucking hole, China has become a gushing fountain of capital.

This isn't the first time a developing country has sent abroad funds that could

Key Concepts

trade policy, p. 690

capital flight, p. 692

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First Time Home Buyers Guide

First Time Home Buyers Guide

If you are getting ready to purchase your first home or if you think you can't afford to purchase your first home, don't make another move until you have read this important information! Every year, Federal, State and Local government and community development programs help thousands of people obtain there first home.

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