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China's Premier Wen "Worried" on Safety of Treasuries

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  • China's Premier Wen "Worried" on Safety of Treasuries

    Stupid is as stupid does? ;)

    China’s Premier Wen ‘Worried’ on Safety of Treasuries (Update1)

    By Belinda Cao and Judy Chen

    March 13 (Bloomberg) -- China, the U.S. government’s largest creditor, is “worried” about its holdings of Treasuries and wants assurances that the investment is safe, Premier Wen Jiabao said.

    “We have lent a huge amount of money to the United States,” Wen said at a press briefing in Beijing today after the annual meeting of the legislature. “I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.”

    U.S. President Barack Obama is relying on China to sustain buying of Treasuries as his administration sells record amounts of debt to fund a $787 billion economic-stimulus package. Chinese investors have lost money on the securities so far this year, after increasing their holdings 46 percent to $696 billion in 2008, according to Treasury Department data.

    “China’s purchases of American debt have been one of the few bolts keeping the wheels on the global economy,” said Phil Deans, a professor of international affairs at Temple University in Tokyo. “If China stops buying where does Obama’s borrowing to fund his stimulus come from?”

    Treasuries declined, causing the yield on the 10-year U.S. note to rise six basis points to 2.92 percent at 4:51 p.m. in Hong Kong, according to BGCantor Market Data. The securities handed investors a loss of 2.7 percent in yuan terms this year, according to Merrill Lynch & Co.’s U.S. Treasury Master index. The dollar fell 0.2 percent to $1.2938 per euro.

    “Of course we are concerned about the safety of our assets,” said Wen. “To be honest, I am a little bit worried.”

    Risky Alternatives

    China should seek to “fend off risks” as it diversifies its $1.95 trillion in foreign-exchange reserves, Wen said. Yu Yongding, a former adviser to the central bank, said in an interview on Feb. 10 that the nation should seek guarantees that its Treasury holdings won’t be eroded by “reckless policies.”

    Demand for the relative safety of Treasuries has been supported in the past two years as finance companies reported $1.2 trillion in credit losses. China boosted holdings of government debt as it lost of more than $5 billion from investing $10.5 billion of its reserves in New York-based Blackstone Group LP, Morgan Stanley and TPG Inc. since mid-2007.

    Currency market moves have been more favorable to holding U.S. bonds this year. Chinese investors who bought Japanese government bonds would have lost 7.7 percent so far this year in yuan terms, compared with a 7.3 percent loss for holders of German bunds, according to the Merrill Lynch indexes.

    Shooting Itself

    “China won’t sell the U.S. debt now as that will only drive down Treasury prices, hurting not only the U.S. but also the value of its own investments,” said Shen Jianguang, a Hong Kong-based economist at China International Capital Corp., an investment bank partly owned by Morgan Stanley.

    U.S. Treasury Secretary Timothy Geithner will defend his spending plans at the Group of 20 meeting near London this weekend. French Finance Minister Christine Lagarde and Germany’s Peer Steinbrueck of Germany want the summit to focus on improving regulation and restraints on the finance industry.

    The U.S. trade deficit and the government’s “nearly unrestricted” borrowing led to excess liquidity worldwide and “sowed the seeds” of the financial crisis, the People’s Bank of China said in a report today. The dollar has dropped 17 percent against the yuan since China ended a fixed exchange rate in July 2005. It was little changed at 6.8384 yuan today.

    Printing Money

    “China is worried that the U.S. may solve its problems by printing money, which will stoke inflation,” said Zhao Qingming, a Beijing-based analyst at China Construction Bank Corp., the country’s second-biggest lender. “If the U.S. can make sure this won’t happen, then China will continue to invest.”

    U.S. Secretary of State Hillary Clinton urged China, while visiting officials in Beijing on Feb. 22, to continue buying U.S. debt, which she called a “safe investment.” She didn’t press China on its foreign-exchange policy, backing away from January comments by Geithner that the Chinese government manipulates its currency to boost exports.

    China will maintain its policy of seeking a stable yuan, even as gains against the euro and Asian currencies hurt the nation’s exporters, Premier Wen said.

    While the yuan has weakened 0.2 percent against the dollar this year, there has been a “drastic depreciation” in the euro and Asian currencies that has put a lot of pressure on Chinese exporters, Wen said. The currency has gained 8.6 percent against the euro this year and 6 percent against the Philippine peso.

    Stimulus Plans

    “Our goal is to maintain a basically stable yuan at a balanced and reasonable level,” Wen said on the final day of the meeting of the National People’s Congress. “At the end of the day, it is our own decision and any other countries can’t press us to depreciate or appreciate our currency.”

    Collapsing exports have dragged the economy to its weakest growth in seven years and eliminated the jobs of millions of migrant workers. Wen reaffirmed China’s target of an 8 percent expansion in 2009 as economies from the U.S. to Japan contract, saying the goal was “difficult but possible” to achieve.

    China can add “at any time” to 4 trillion yuan ($585 billion) of stimulus measures to revive the world’s third- biggest economy, Wen said. Gross domestic product expanded 6.8 percent in the fourth quarter, compared with 9 percent for all of last year and 13 percent for 2007.

    “We have reserved adequate ammunition,” Wen said, adding that the fiscal deficit is under control and the debt level still safe. “At any time, we can introduce new stimulus.”

    Delegates of China’s legislative advisory body suggested that the government diversify away from Treasuries into more risky assets. Jesse Wang, executive vice president of China Investment Corp., said on March 4 that the nation’s $200 billion sovereign wealth fund may invest in “undervalued” commodities.

    The Reuters/Jefferies CRB Index that tracks 19 commodities dropped 55 percent from a record high of 473.97 reached in July. Oil prices fell 68 percent from July’s all-time peak of $147.27 a barrel.

    To contact the reporter on this story: Belinda Cao in Beijing at [email protected]udy Chen in Shanghai at [email protected]

    Last Updated: March 13, 2009 05:18 EDT

  • #2
    U.S. Tries to Assure China of it's Asset Safety in U.S.

    U.S. tries to assure China of its assets safety in U.S.

    WASHINGTON, March 13 (Xinhua) -- U.S. President Barack Obama's top economic advisor Friday tried to assure China's concern about the safety of its assets in U.S., saying the U.S. would be "sound stewards of the money we invest."

    "This is a commitment that the president has made very clear --we need to be sound stewards of the money we invest," said Lawrence Summers, the president's director of the National Economic Council, in a speech at the Brookings Institution, a leading think tank in the United States.

    Chinese Premier Wen Jiabao said earlier Friday he is "a little bit worried" about the safety of Chinese assets in the United States, urging the U.S. government to ensure the security of those assets.

    "We lent such huge fund to the United States and of course we're concerned about the security of our assets and, to speak truthfully, I am a little bit worried," said Wen at a press conference after the close of the annual Chinese parliament session on Thursday.

    China has invested its huge foreign exchange reserves in low-risk but low-yield assets, such as U.S. government bonds, to play it safe.

    According to the U.S. Treasury, China held 681.9 billion U.S. dollars worth of U.S. government bonds as of November.

    "China is indeed the largest creditor of the United States, which is the world's biggest economy. We are extremely interested in developments in the U.S. economy," said Wen, adding that he is expecting the effect of the measures taken by the U.S. government to counter the international financial crisis.

    Summers, asked to react to Wen's concern during Friday's speech, noted that the United States had to utilize all resources available at present to jolt its economy from prolonged recession."

    He also said the current crisis has led to an "excess of fear" among Americans that must be broken to reverse the downturn.

    "Fear begets fear," said the former treasury secretary in Clinton administration. "What we need today is more optimism and more confidence."


    • #3
      That is what happens when you build your economy on underpriced exports, you then have to support the imbalance by buying the bonds of the nation you are supplying.

      Bad policy for the US, Bad for China (<-I don't care about China)

      But if they stopped buying the bonds, they stop selling their goods, have 100 million+ unemployed chinese ready to revolt. I guess they will buy the bonds even if they are worried about the security of the bonds.
      My weapon can kill, it isn't limited to mere assault


      • #4
        I read somewhere that during Hitlery Xlinton's trip to China a couple weeks ago she promised American territory if we default on the debt. Is supposedly part of what is driving the States' sovereignty resolutions.

        Supposedly the person reporting this has had it verified by persons both here and in China, but has no documentation as yet, so is rumor at this point in time.
        "If Howdy Doody runs against him, I'm voting for the puppet." - SkyOwl's Wife, 2012


        • #5
          I wonder what "territory" they will promise? DC maybe? I'm sure there are comrades in a big white house there.;)


          • #6
            If true, this will cause "the uprising", I suspect.
            "If Howdy Doody runs against him, I'm voting for the puppet." - SkyOwl's Wife, 2012


            • #7
              Yea they should be worried, worried as hell.


              • #8
                Couple of months ago, I read an economist who said this is only the beginning, the next big crash will be the commercial real estate market. As business go bankrupt, the real estate they have will default. He said that would be horrendous (whatever that means).

                This AM, I read that commercial real estate is showing signs of "distress".

                Wonder if it will be the American military or the Chinese military who will throw us out of whatever territory they are given when this whole thing collapes.
                "If Howdy Doody runs against him, I'm voting for the puppet." - SkyOwl's Wife, 2012