March 14, 2009 in Business, Nation/World

Chinese ‘worried’ about U.S. debt

China holds about $1 trillion in U.S. bonds
Don Lee And Barbara Demick Los Angeles Times
 

SHANGHAI, China – Chinese Premier Wen Jiabao voiced concerns Friday about the security of China’s massive investments in U.S. government debt, even as he expressed confidence in the leadership of President Barack Obama.

“To be honest, we are a little bit worried,” Wen said, speaking at the closing news conference of China’s legislative session. “We have loaned huge amounts of money to the United States, so of course, we have to be concerned.  …  We hope the United States honors its word and ensures the safety of Chinese assets.”

China is America’s biggest foreign creditor. About one-half of China’s estimated $2 trillion of foreign exchange reserves, the largest in the world, are invested in U.S. Treasury and other government-backed bonds. China’s continued holdings and future purchases of American debt are seen as an important part of financing Obama’s $787 billion economic stimulus plan.

Wen’s comments, coming after a string of otherwise upbeat pronouncements about China’s own economic prospects, were unusual in that he has rarely spoken up on the issue, nor in such frank terms.

Analysts said they doubted the remarks were impromptu; rather, they may have been intended in part to send a message, perhaps to Americans in particular, about just how much they are reliant on the Chinese for their economic security.

“I suppose you could kind of view it as a shot across the bow,” said Mark Williams, Asia economist at Capital Economics Ltd. in London.

In a visit to China in February, Secretary of State Hillary Rodham Clinton sought to assure Beijing that U.S. assets remained a reliable investment. Beijing has not given indications of any major shift in its current investments or future buying plans, although analysts expect Chinese policymakers to gradually diversify its holdings.

About two-thirds of China’s foreign reserves, accumulated from the nation’s booming trade surplus, are estimated to be held in U.S.-denominated assets. To a large degree, though, China’s hands are tied, because any big withdrawals or sharp changes in purchasing could seriously disrupt global markets and hurt China’s own interests.

Still, Chinese policymakers and scholars increasingly have raised concerns about putting too much of the funds in one basket, and a rickety one at that. Some have urged more investment in tangible assets such as natural resources and technology, and less of U.S. government bonds. Their view is that the securities are susceptible to a large drop in value.

“I think it can’t be more natural for Premier Wen to feel worried,” said Zhao Xijun, professor of finance at Beijing’s Renmin University of China. “All the Chinese citizens will also share such concerns about our country’s assets under the current situation of this financial crisis.”


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