Originally posted by Brian Hanley:
The idea China is going to side with Iran is not credible to me on its face. China is in a deadly embrace with us economically. Trade ties and they hold a huge amount of our debt. There isn't room enough in the world for that amount of debt to be dumped. That's one of the benefits of being the biggest game in town with everyone else bit players.
The PRC has their own sets of issues that make any idea of a mass dump of their accumulated economic assets rather unlikely. There's been sustained coverage by the WSJ over a number of these issues, and China has some rather serious issues that they are trying to manage.

First off, Iran likes $100 a Bbl. oil. But the PRC has real problems with $100 Bbl. oil - even bigger problems that we & the EU have. China subsidizes fuel, to the point where the WSJ recently noted that per gal. diesel prices in China run about $2.40 a gal., vrs. at least $3.15 a gal. here in the US, and much higher in the EU. And it appears they subsidize all types of fuel. Plus they have to buy most of their oil in dollars, which is why they need that vast (One Trillion+) liquid pool of dollar denominated assets.

Now, Iran has made noises about only accepting the Euro for oil, but this is even less helpful not just for the EU (raises their currency value even higher, which is literally the last thing they want right now - makes their exports even more expensive), but also for China, that just kills them, because it's a triple hit - (a) Buy more imported oil, (b) At increased subsidy costs for each liter sold, and (c) they have to spend cheap dollars to buy more expensive Euros to pay for each Bbl. of oil.

And there's a real wild card out there that only the financial types are seemingly paying attention to - Most people don't realize that over the past several years, China's domestic stock market (which outsiders cannot invest in) has had more IPO (Initial Public Offering) activity than anywhere else in the world, including in the US. The Chinese stock market currently has an uncanny resemblance to the 1999-2000 Internet/IPO market which melted down into what became known as the "Dot.Com Bust". If their internal stock market blows up, it's going to be interesting times indeed.

Hard to believe, but that trillion dollars piggy bank can shrink pretty rapidly.