CNN — LOU DOBBS TONIGHT — Aired October 18, 2007 - 18:00 ET

LOU DOBBS, CNN ANCHOR: Well, communist China is, well, expanding its economy, expanding its military. And it is flush with cash, mostly Yankee dollars, buying up corporations all over the world now. It is the latest object of interest to the United States government, which seems to be awakening to the issue after, for example, China has decided to invest in Bear Stearns.

China already America's banker — the second largest holder of American debt, bought up with the proceeds of our record trade deficit.

As Christine Romans now reports, the Chinese are putting all of those Yankee dollars to work and not in those Yankee interests.

CHRISTINE ROMANS, CNN CORRESPONDENT (voice-over): Is America's banker looking to buy a piece of an American investment bank?

A top Chinese banking official this week says CITIC Group, the overseas investment arm of the Chinese government, is interested in a stake in Bear Stearns — a Wall Street institution that survived the crash of '29, but was battered by the mortgage crisis.

A day later, Civic issued a statement saying a deal is not imminent.

But what is clear is that China has the intent and the funds to buy almost anything it wants — and financial services are next.

CHARLES MCMILLION, MBG INFORMATION SERVICES: Investment banking is a unique industry. It gives them just a phenomenal perch from which to learn about the technologies of all of our industries, the best management practices of all of our industry. And that's part of the larger Chinese strategy.

ROMANS: Bear Stearns would not comment.

China has been an aggressive buyer of the world's natural resources. It has sought major technology assets, like the 3Com deal raising alarms in Congress.

China has the money to spend thanks to U.S. trade policies that led to record trade deficits. China's war chest of foreign currency has exploded, from just over $200 billion in 2001 to more than $1.4 trillion today. Now, China's economic planners say they want to put those dollars to work.

WILLIAM HAWKINS, U.S. BUSINESS AND INDUSTRY COUNCIL: All of this is being done by the government of China. This is not private enterprise. This is not business as usual. This is the government allocating these, you know, hundreds of billions of dollars for government objectives.

ROMANS: China's reserves are rising by at least $10 billion a week this year. Economist McMillon says consider that government-owned Lenovo bought IBM's PC business in 2005 for $1.25 billion. That means China could buy eight such companies every week.

(END VIDEO TAPE)

ROMANS: As the dollar declines, there are concerns that China may be tempted to sell off U.S. Treasury assets, ultimately driving up interest rates in this country. With such a huge war chest, even that threat gives China incredible leverage over the U.S. economy. And, indeed, in the month of August, both Japan and China and Taiwan's central banks were huge sellers.

DOBBS: Well, look, you know, because we — we look at the independent, nonpartisan reality and it freezes a bit from what some other news organizations, for example, may be doing.

Fact — the dollar is now at an all time low against the euro.

Fact — China and Japan both, with those immense reserves, the principal holder of American dollars and hard currency, are driving that dollar lower because of their change in strategy. China, in particular, is no longer interested in our credit markets, which it has been sustaining. Now it wants hard assets and is pursuing this.

And deals with The Carlisle Group with The Blackstone Group and rumored with the...

ROMANS: Bear Stearns this week.

DOBBS: ...the Bear Stearns deal. I mean...

ROMANS: And also the Bain Capital, Rahway, 3Com...

DOBBS: ...it is — and 3Com, which the CFIUS should take two minutes to meet and reject and continue — and Henry Paulson, the Treasury secretary, says he wants to recuse himself. The man is an absolute — I mean he is being absolutely derelict. He's the Treasury secretary. He doesn't have to recuse himself. He knows on its face it's an idiotic thing to approve and he should take steps to simply dissuade the Communist Chinese — period.

ROMANS: We're expecting a letter from several senators tomorrow, Lou — not to the Treasury secretary, because he's recused himself, but to a deputy secretary saying they're against that deal.

DOBBS: Yes...

ROMANS: The Rahway/3Com deal.

DOBBS: And to be clear, to all the — OK, we'll go to — with imbeciles right now, who consider themselves free traders at any cost, I'm not talking about protectionism here. I'm not talking about economic isolationism, because I believe profoundly in international trade. But I also believe in pursuing the national interests, just as China does and has great strictures on foreign investment there, as does every other major developed nation.

It is time for this country, this administration and this Congress to wake up to what is the national interest and the common good — period.

ROMANS: One of these economists today told me we're at the beginning, Lou, of a five to 10-year trend of all of those dollars from our trade deficits and petrodollars, frankly, coming back from government-owned entities buying up U.S. companies.

DOBBS: Sure. Because we are at a stage in which we are watching that amazing amount of national debt and foreign trade debt, which now exceeds $6 trillion. It's rising faster than the national debt. And it is a crisis for this country, and certainly for a leadership in this country that is simply overwhelmed by the challenges. And I hope that at some point, they will find themselves up to meeting those challenges, rather than recusing their little darling selves.