Tuesday 24 March 2009

US Treasuries still key to China investment

Treasury bonds to remain main vehicle for Beijing's forex investments: official

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Guanyu said...

US Treasuries still key to China investment

Treasury bonds to remain main vehicle for Beijing's forex investments: official

AFP
24 March 2009

Beijing will continue to make US Treasury bonds the main investment vehicle for its foreign exchange holdings, an official said yesterday amid fears over the safety of China's assets in the United States.

'Investing in US Treasury bonds is an important element in China's investment strategy and we will continue this practice,' Hu Xiaolian, deputy governor of China's central bank, told reporters.

China has been the top holder of US Treasury bonds since last September, when it overtook Japan for the first time, according to US data.

By late January, it had accumulated a total of US$739.6 billion in US Treasury bonds, the most recent data from the US government showed.

But some Chinese commentators have voiced frustration that Beijing has been unable to find higher- yielding investment targets for its huge forex reserves.

And in a rare expression of official concern over Beijing's huge bond holdings, Premier Wen Jiabao earlier this month called on the US to safeguard its investments.

'To be honest, I am a little bit worried and I would like to . . . call on the United States to honour its word and remain a credible nation and ensure the safety of Chinese assets,' Mr Wen had said.

He spoke after the US approved a massive economic stimulus package, which some fear could drive down the value of dollar-based assets.

US President Barack Obama's administration quickly responded to Mr Wen's concerns by saying China's bonds were safe.

The central bank's Ms Hu said that while Treasury purchases would remain key to China's investment plans, Beijing would also keep a close eye on them.

'I also want to stress that we pay great attention to the fluctuations of the value of our assets,' she said, without elaborating.

Speaking at a press briefing on China's participation in next week's Group of 20 (G-20) summit in London, Ms Hu said the world economic crisis had impacted the rate of growth in China's forex reserves.

'In many emerging markets there has been a serious outflow of capital, but this has not happened in China. But compared to the massive inflows of capital in recent years, it has been slowing down,' she said, while providing no figures.

'We have full confidence in China's balance of payments,' she added. China's forex reserves hit US$1.95 trillion at the end of 2008, making them the world's largest.

Chinese media reported last week that the reserves had fallen by about US$30 billion in January, partially due to a drop in the value of non-dollar assets.

At yesterday's briefing, Ms Hu and other officials said that at the G-20 summit, Chinese President Hu Jintao would push for deep reform of the global financial regulatory system and greater decision-making powers for developing nations.