Without any doubt the fastest growing country in the world is also the largest in many ways. CHINA rightfully claims that title.

In total population China dwarfs all others…in territorial area…it is second only to Russia. Furthermore, China’s economic growth – whether measured in annual percent increase in GNP or in absolute total dollar growth is second to none. To be sure the Sino country’s export trade (and resulting Trade Surplus) is the envy of its global competitors. Unfortunately, China’s exponential growth in Foreign Reserves has fostered a serious problem.

SERIOUS FOREX RISK

China’s export trade machine has ‘invaded’ all countries, especially the USA. This resulted in building up a mountain of Foreign Reserves, denominated mostly in US Dollars. Recent data show China has upwards of $2,273 Billion in Foreign Reserves with about 70% denominated in US dollar (*).

Unfortunately, The Peoples Bank of China did not have the foresight to diversity its mounting Foreign Reserves into other currencies like the euro, yen and gold. Consequently, China will suffer a horrific loss in 2009. The loss is composed in two parts: 1)Dollar devaluation, and 2)Price decline of US Treasuries as most of its Foreign Reserves are in this investment vehicle….rather than gold. The following chart clearly demonstrates the relative total return of the US Dollar, US Treasuries and gold during 2009. As of December 29, 2009):

…..read more HERE. (scroll down to the first chart)