|Traders work on the floor of the New York Stock Exchange in New York, United States.|
China, the US governmentâs largest creditor, is âworriedâ about its holdings of Treasuries and wants assurances that the investment is safe, Premier Wen Jiabao said.
âWe have lent a huge amount of money to the US,â Wen said at a press briefing in Beijing Friday after the annual meeting of the legislature. âI request the US to maintain its good credit, to honor its promises and to guarantee the safety of Chinaâs assets.â
US President Barack Obama is relying on China to sustain buying of Treasuries as his administration sells record amounts of debt to fund a US$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.
âChinaâs purchases of American debt have been one of the few bolts keeping the wheels on the global economy,â said Phil Deans, a professor of international affairs at Temple University in Tokyo. âIf China stops buying where does Obamaâs borrowing to fund his stimulus come from?â
Treasuries declined, causing the yield on the 10-year US note to rise 0.06 percent 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.âs US Treasury Master index. The dollar fell 0.2 percent to $1.2938 per euro.
âOf course we are concerned about the safety of our assets,â said Wen. âTo be honest, I am a little bit worried.â
China should seek to âfend off risksâ 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 February 10 that the nation should seek guarantees that its Treasury holdings would not be eroded by âreckless policies.â
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 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 US 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.
âChina will not sell the US debt now as that will only drive down Treasury prices, hurting not only the US but also the value of its own investments,â said Shen Jianguang, a Hong Kong-based economist at China International Capital Corp., an investment bank partly owned by Morgan Stanley.
US 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 Germanyâs Peer Steinbrueck of Germany want the summit to focus on improving regulation and restraints on the finance industry.
The US trade deficit and the governmentâs ânearly unrestrictedâ borrowing led to excess liquidity worldwide and âsowed the seedsâ of the financial crisis, the Peopleâs Bank of China said in a report Friday. 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 Friday.
âChina is worried that the US may solve its problems by printing money, which will stoke inflation,â said Zhao Qingming, a Beijing-based analyst at China Construction Bank Corp., the countryâs second-biggest lender. âIf the US can make sure this will not happen, then China will continue to invest.â
US Secretary of State Hillary Clinton urged China, while visiting Beijing on February 22, to continue buying US debt, which she called a âsafe investment.â She did not 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 would maintain its policy of seeking a stable yuan, even as gains against the euro and Asian currencies hurt the nationâs exporters, Premier Wen said.
While the yuan has weakened 0.2 percent against the dollar this year, there has been a âdrastic depreciationâ 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.
âOur goal is to maintain a basically stable yuan at a balanced and reasonable level,â Wen said on the final day of the meeting of the National Peopleâs Congress. âAt the end of the day, it is our own decision and other countries cannot press us to depreciate or appreciate our currency.â
Collapsing exports have dragged the economy to its weakest growth in seven years and eliminated the jobs of millions of migrant workers. Wen reaffirmed Chinaâs target of an 8 percent expansion in 2009 as economies from the US to Japan contract, saying the goal is âdifficult but possibleâ to achieve.
China can add âat any timeâ to 4 trillion yuan ($585 billion) of stimulus measures to revive the worldâs 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.
âWe have reserved adequate ammunition,â Wen said, adding that the fiscal deficit is under control and the debt level still safe. âAt any time, we can introduce new stimulus.â
Delegates of Chinaâs 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 nationâs $200 billion sovereign wealth fund may invest in âundervaluedâ 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 Julyâs all-time peak of $147.27 a barrel.