Beijing should buy Treasury bonds before others, says investment bank
Reuters 16 October 2008
(BEIJING) China should buy US Treasury securities to help fund the bailout of the American financial system and should do so before other countries, investment bank China International Capital Corp (CICC) said yesterday.
Doing so would allow Beijing to benefit from the rise in bond prices and possible appreciation in the dollar that would occur when others followed suit, CICC said in a weekly report.
Speculation is rife that Washington is seeking to persuade China, Japan and oil exporters to buy US government bonds.
If those countries refuse, the United States will have to resort to printing money, diluting the value of their extensive dollar holdings, CICC analysts, led by chief economist Ha Jiming, said.
‘Therefore we think China should buy US Treasury bonds and buy them ahead of other buyers,’ Mr Ha said.
There is no indication that the report reflects official thinking, but it feeds into an active debate in Beijing on how China should respond to the market maelstrom. Run by a son of former premier Zhu Rongji, CICC is a well-connected bank in which Morgan Stanley has a passive 34.3 per cent stake.
Mr Ha noted that the US had helped Beijing by bailing out Fannie Mae and Freddie Mac, which saved China from big losses on its holdings of the two mortgage agencies’ debt.
Owing to the close linkages in the global economy, it was important for Washington and Beijing to collaborate in combating the crisis, CICC added. A failure to act together would be a great global depression.
In return for its pledge to buy more US debt, China should press for policy concessions such as a relaxation of US curbs on exports of high-tech goods to China, CICC said.
Meanwhile, China Investment Corp (CIC), the country’s sovereign wealth fund, said yesterday that it had ordered a full withdrawal of its cash from a troubled US money market account before it was frozen.
Indeed, it had received written confirmation that it would receive its principal and interest, the wealth fund said.
The Reserve Primary Fund suspended redemptions last month when it became the first money market fund in 14 years to ‘break the buck’, the par value of its shares falling to US$0.97, because of losses on debt issued by Lehman Brothers.
A US regulatory filing showed that Stable Investment Corp, an arm of CIC, was the biggest institutional shareholder in the fund as at Sept 1, with a stake of potentially more than US$5 billion.
‘CIC used to invest in the fund, but made an order to claim all its money back before withdrawals were halted,’ the sovereign wealth fund said in a statement published on its website.
‘The fund has sent us a written confirmation that it will refund the principal and interest,’ it added. ‘Now, CIC is no longer the fund’s shareholder, but a creditor.’
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China urged to help bail out US financial system
Beijing should buy Treasury bonds before others, says investment bank
Reuters
16 October 2008
(BEIJING) China should buy US Treasury securities to help fund the bailout of the American financial system and should do so before other countries, investment bank China International Capital Corp (CICC) said yesterday.
Doing so would allow Beijing to benefit from the rise in bond prices and possible appreciation in the dollar that would occur when others followed suit, CICC said in a weekly report.
Speculation is rife that Washington is seeking to persuade China, Japan and oil exporters to buy US government bonds.
If those countries refuse, the United States will have to resort to printing money, diluting the value of their extensive dollar holdings, CICC analysts, led by chief economist Ha Jiming, said.
‘Therefore we think China should buy US Treasury bonds and buy them ahead of other buyers,’ Mr Ha said.
There is no indication that the report reflects official thinking, but it feeds into an active debate in Beijing on how China should respond to the market maelstrom. Run by a son of former premier Zhu Rongji, CICC is a well-connected bank in which Morgan Stanley has a passive 34.3 per cent stake.
Mr Ha noted that the US had helped Beijing by bailing out Fannie Mae and Freddie Mac, which saved China from big losses on its holdings of the two mortgage agencies’ debt.
Owing to the close linkages in the global economy, it was important for Washington and Beijing to collaborate in combating the crisis, CICC added. A failure to act together would be a great global depression.
In return for its pledge to buy more US debt, China should press for policy concessions such as a relaxation of US curbs on exports of high-tech goods to China, CICC said.
Meanwhile, China Investment Corp (CIC), the country’s sovereign wealth fund, said yesterday that it had ordered a full withdrawal of its cash from a troubled US money market account before it was frozen.
Indeed, it had received written confirmation that it would receive its principal and interest, the wealth fund said.
The Reserve Primary Fund suspended redemptions last month when it became the first money market fund in 14 years to ‘break the buck’, the par value of its shares falling to US$0.97, because of losses on debt issued by Lehman Brothers.
A US regulatory filing showed that Stable Investment Corp, an arm of CIC, was the biggest institutional shareholder in the fund as at Sept 1, with a stake of potentially more than US$5 billion.
‘CIC used to invest in the fund, but made an order to claim all its money back before withdrawals were halted,’ the sovereign wealth fund said in a statement published on its website.
‘The fund has sent us a written confirmation that it will refund the principal and interest,’ it added. ‘Now, CIC is no longer the fund’s shareholder, but a creditor.’
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