China's Wen Jiabao concerned about stability of U.S. debt
- From: Chim <ChimS1@xxxxxxx>
- Date: Sat, 14 Mar 2009 00:43:29 -0700 (PDT)
China's Wen Jiabao concerned about stability of U.S. debt
About half of China's $2-trillion foreign exchange reserves are
invested in U.S. government bonds. 'We hope the United States honors
its word and ensures the safety of Chinese assets,' Wen says.
By Don Lee and Barbara Demick
March 14, 2009
Reporting from Shanghai and Beijing -- Showing China's growing
economic muscle, the nation's premier Friday expressed concerns about
the stability of U.S. government bonds in Chinese hands and urged
Washington to provide assurances to its largest foreign creditor.
"To be honest, we are a little bit worried," Wen Jiabao said at the
closing news conference of China's annual 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."
Analysts said that Wen's concerns were natural, given that China holds
roughly $1 trillion of U.S. Treasury and other government-backed
bonds, and that Washington is now looking to borrow record sums to try
to dig out of the recession.
Still, his surprisingly candid comments reflected Beijing's increasing
confidence and assertiveness in a global economy in which the
communist nation is banker to the world's richest country.
His words would not have been lost on Washington. The White House is
counting on China to continue holding American debt and making future
purchases to support President Obama's $787-billion economic stimulus
plan. China's big appetite for Treasury issues has helped keep U.S.
interest rates low and thus supplied cheap credit for Americans to buy
homes and other goods.
Now, the U.S. needs China to continue bankrolling its spending to help
it pull out of the worst economic downturn in decades, even as China
needs the U.S. to buy its manufactured goods to keep people employed.
Wen also made it clear that China would not be bullied into adjusting
its currency value. U.S. manufacturers and lawmakers have long
complained that the artificially low yuan gives Chinese exporters an
unfair trade advantage.
"No country in the world has the right to put pressure on the
devaluation or appreciation of the Chinese currency," Wen said.
Analysts doubted that Wen's remarks were impromptu. Rather, they were
probably intended in part to send a message -- perhaps pointedly to
Americans -- about just how reliant they are 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 in London.
Wen spoke in advance of a summit of the Group of 20 major nations next
month in which China may play an influential role in discussion of a
coordinated stimulus plan and other strategies to fight the economic
crisis. The world's third-largest economy, China hasn't escaped the
global financial turmoil. Still, it remains the fastest-growing among
major powers. Wen said Beijing was prepared to plow more money into
its previously announced $586-billion domestic stimulus plan.
U.S. Treasuries stumbled early Friday after Wen expressed nervousness
about the prospects of U.S. debt. But buyers quickly returned to the
market, which has been stable in recent weeks despite Uncle Sam's
massive borrowing binge.
White House and Treasury officials sought to ease Chinese concerns and
reassure investors.
"There's no safer investment in the world than in the United States,"
White House Press Secretary Robert Gibbs said Friday.
In a visit to China last month, Secretary of State Hillary Rodham
Clinton likewise tried 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 China is expected to
gradually diversify its holdings. About two-thirds of China's foreign
reserves, accumulated from the nation's trade surplus, are estimated
to be held in U.S.-denominated assets. To a large degree, though,
China's hands are tied. Any big withdrawals or sharp declines in
purchasing could seriously disrupt global markets and lower the value
of China's own holdings.
Still, Chinese policymakers and scholars increasingly have raised
concerns about putting too much of China's wealth 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 in U.S.
government bonds. Their view is that these securities are susceptible
to a large drop in value because of the risks of a falling dollar or
rising inflation as Washington prints more money to support its
spending.
"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."
China's response to the global economic crisis was a dominant theme
during the meeting of the National People's Congress, the legislative
body controlled by the Communist Party. Despite a record fall in
Chinese exports last month and a sharp deceleration of economic
growth, Wen told foreign journalists Friday that he was hopeful China
would emerge from the global crisis "at an early date."
He said Beijing was prepared to add to its stimulus plan if it didn't
get China's economy moving. Statistics released this week suggest that
government spending on infrastructure and other projects -- plus
aggressive lending by Chinese banks, which are relatively healthy
compared with Western institutions -- may be starting to take effect
as capital investment picked up.
"We have our plans ready to tackle even more difficult times," Wen
said. "At any time we can introduce new stimulus policies."
China's role looms large because it is one of the globe's few major
economies that are projected to grow this year. In recent years, the
U.S. and, secondarily, China have propelled world economic growth. But
with the U.S. in a deep downturn, and Japan and Europe also
contracting, people are increasingly looking to China to help spark a
recovery.
Last week, markets rose on word that Beijing might beef up its
stimulus plan, only to fall back after Wen did not announce an
increase during the opening of the legislative session. On Friday, Wen
said that "rumors and misunderstandings set the world stock market on
a roller-coaster ride."
Journalists pressed the premier on his projections that China will
achieve economic growth of 8% this year, a figure many economists call
overly optimistic. Under questioning, Wen said it was more of a "goal"
than an expectation. In 2007, China's economy expanded 13%. That fell
to an annualized rate of 6.8% in the fourth quarter of last year.
"I must admit it will be difficult to reach this goal . . . but this
goal is an indication of the government's confidence," he said.
"Setting the goal is like setting a compass so that you know which way
the ship is heading."
don.lee@xxxxxxxxxxx
barbara.demick@xxxxxxxxxxx
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