Thursday 5 March 2009
Beijing advised to cut purchase of US Treasury bills
Some leading Chinese economists have suggested that the government drastically reduce its purchase of Treasury bills from the United States. The advice comes within days of Hillary Clinton, the US Secretary of State, urging Chinese leaders to continue buying Treasury bills.
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Beijing advised to cut purchase of US Treasury bills
By SAIBAL DASGUPTA
5 March 2009
Some leading Chinese economists have suggested that the government drastically reduce its purchase of Treasury bills from the United States. The advice comes within days of Hillary Clinton, the US Secretary of State, urging Chinese leaders to continue buying Treasury bills.
‘The US needs the investment in Treasury bonds to shore up its economy to continue to buy Chinese products,’ Mrs. Clinton said while speaking at the US Embassy in Beijing.
Mrs. Clinton left no one in doubt that she expected Beijing to indirectly finance part of her government’s US$787 billion economic stimulus plan by continuing to buy US Treasuries.
‘By continuing to support American Treasury instruments the Chinese are recognising our interconnection. We are truly going to rise or fall together,’ she said. China holds the largest amount of US Treasury bills, which amounted to US$696.2 billion last December. It is followed by Japan, which held US$578.3 billion worth of US bonds until end-2008.
The Chinese government is in no haste to unravel its investment programme this year or the next. But several economists, most of whom work for state-run institutions, have said the government should not bet too heavily on the US economy and instead spread its overseas investments across the globe.
A survey of 70 economists conducted by China-CBN, a leading Chinese financial daily, shows that 71.4 per cent do not want China to continue to buy US Treasury bonds. Three fourth of the economists have advised the government to increase investment in gold reserves.
The extent of losses suffered by Chinese companies and state-run investors because of the subprime scandal and consequent slump in the value of US investments is still not known. But the reactions of leading economists suggest that Chinese entities had a high exposure to both Treasuries and US corporate bonds and have burnt their fingers severely.
Last Friday, the US Treasury released the preliminary results of its annual survey of foreign portfolio investment in the US. The report shows China bought about US$45 billion of corporate bonds from June 2007 to June 2008.
Half of the economists responding to the China-CBN survey said stocks will continue to remain a good investment option. This advice is significant because the government has been encouraging selected state-run companies to invest in overseas stock markets.
Zhang Liqin, dean of the School of Finance at Central University of Finance and Economics, told surveyors he expected the US economy to take a lot more time to recover than what was being suggested by the government in Washington. Prospects of Chinese exports to the US will continue to remain dim for a long time, he said.
Two other economists, Yin Jianfeng, director of Structural Finance Studies with China Academy of Social Sciences and Yu Genqian, senior statistician with the National Bureau of Statistics, warned against being too optimistic about the economic recovery programmes being formulated to tackle the global crisis.
There is a strong possibility that the crisis would deepen. In any case, the downturn will continue until 2010 and beyond.
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