China will create an agency to invest its immense reserves of foreign currency, now totaling more than $1 trillion, the country’s finance minister announced on Friday. (free registration required)

A colleague was just telling me that one of the little known facts of contemporary war and economics is that China’s purchase of US Treasury bonds is basically financing the war in Iraq. A day later China announces that it is opening shop to a trillion dollar investment fund. To anyone with any understanding of the modern Chinese politics…this is huge! Just consider this hypothetical, in order to pressure…say Taiwanese leadership’s policy on independence…rather then threaten military strikes they can threaten to “strategically invest” in a way that could roil markets or take ownership away from key industries partners. Keep an eye open on this because I’m sure the consequences of this decision will be tremendous.

China to Open Fund to Invest Currency Reserves