Corporations with lots of cash and doing little spending - Essay Example

The idea that China is investing in large amounts of Treasury Securities with its surplus of cash from its Balance of Trade is a natural phenomena ina market driven economy. We have to understand that the economic condition and confidence in China is very different compared here in the United States. First, we have to acknowledge that we are still in the process of recovering from the recent financial crisis. To understand that better, that crisis is not just about people losing their jobs and their homes or companies refusing to lend, but it is more a crisis of confidence.

With companies lying about their true financial positions with series of financial scandals that followed after another, you cannot blame people if they distrust the financial infrastructure in this country. It will take time to regain that confidence. So it is not a wonder if companies and investors alike are very cautious in investing here in the United States. China on the other hand, does not have that problem. Their economy has been registering more than 10 % in GDP for more than 15 years with its financial market always on a steady rise.

We also have to remember that China is an emerging market that came from decades of isolationist communist rule. That means that its market is relatively unexplored compared to the maturing market in the United States and Europe. In addition, a quarter of the world’s population is in China so we can only imagine how big the market is and along with it is the profit potential for business who will corner a share of that market. So if a certain economy or company has that much money lying around and has to reinvest, that money will naturally look for a market that yields higher return with relatively lower risk.

It will not be a surprise if all roads for investors will lead to China given the potential of its market. Do not forget that our credit rating has also been just recently downgraded and that is not an incentive for investors to keep their money here. The case of San Francisco-Oakland Bay Bridge construction’s outsourcing of its massive cable, key sections of the iconic tower and deck to China that could amount to $400 million dollars may look unpopular and insensitive with a 12 % domestic unemployment, but it makes economic sense and sound fiscal policy for the State of California.

It is more cost-efficient to have it sourced abroad than have it done domestically. Bob LaVenture, a District Director for the United Steelworkers Union admitted it himself that there is no way that they could compete with a $12 a day wage in China. The money that was saved with the outsourcing could be used somewhere else that the State of California would know to be used cost efficiently, if possible, domestically. There is nothing unpatriotic about it. It is just the law of the market at work.