China's Wen Is `Worried' at Safety of U.S. Treasuries, Asks for Assurances

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China ‘Worried’ Over Safety of U.S. Debt, Wen Says (Update3)
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By Eugene Tang and Tian Ying

March 13 (Bloomberg) -- China, the U.S. government’s largest creditor, is “worried” about its holdings of Treasuries and wants assurances that the investment is safe, Premier Wen Jiabao said.



“We have lent a huge amount of money to the United States,” Wen said at a press briefing in Beijing today after the annual meeting of the legislature. “Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.”

China should seek to “fend off risks” as it diversifies its $1.95 trillion in foreign-exchange reserves and will safeguard its own interests, Wen said. Chinese investors held $696 billion of U.S. Treasuries as of Dec. 31, an increase of 46 percent from the prior year.

Treasuries have dropped this year as President Barack Obama sells record amounts of debt to fund his $787 billion economic stimulus package. Merrill Lynch & Co.’s U.S. Treasury Master index shows the securities declined 0.5 percent last month, after falling 3.1 percent in January, the most since April 2004. The dollar has dropped 17 percent against the yuan since China ended a fixed exchange rate in July 2005.

Treasuries declined, causing the yield on the 10-year U.S. Treasury note to rise 3 basis points to 2.89 percent at 11:49 a.m. in Hong Kong, according to BGCantor Market Data. The yuan was little changed at 6.8380 per dollar. The Shanghai Composite Index of stocks climbed 0.7 percent.

Stable Yuan

“China is worried that the U.S. may solve its problems with the fiscal deficit and banks by printing money, which will stoke inflation,” said Zhao Qingming, a Beijing-based analyst at China Construction Bank Corp., the country’s second-biggest lender. “If the U.S. can make sure this won’t happen, then China will continue to invest.”

U.S. Secretary of State Hillary Clinton urged China, while visiting officials in Beijing on Feb. 22, to continue buying U.S. debt, which she called a “safe investment.” She didn’t press China on its foreign-exchange policy, backing away from January comments by Treasury Secretary Timothy Geithner that the Chinese government manipulates its currency to boost exports.

China will maintain its policy of seeking a stable yuan, even as gains against the euro and Asian currencies hurt the nation’s exporters, Premier Wen said. People’s Bank of China Governor Zhou Xiaochuan pledged last week to maintain yuan stability as investors pull money out of emerging-market assets because of slowing global economic growth.

Independent Policy

While the yuan has weakened 0.2 percent against the dollar this year, there has been a “drastic depreciation” 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.

“Our goal is to maintain a basically stable yuan at a balanced and reasonable level,” Wen said on the final day of the meeting of the National People’s Congress. “At the end of the day, it is our own decision and any other countries can’t press us to depreciate or appreciate our currency.”

Collapsing exports have dragged the economy to its weakest growth in seven years and eliminated the jobs of millions of migrant workers. Wen reaffirmed China’s target of an 8 percent expansion in 2009 as economies from the U.S. to Japan contract, saying the goal was “difficult but possible” to achieve.

Stimulus Plans

China can add “at any time” to 4 trillion yuan ($585 billion) of stimulus measures to revive the world’s 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.

“We have reserved adequate ammunition,” Wen said, adding that the fiscal deficit is under control and the debt level still safe. “At any time, we can introduce new stimulus.”

Yu Yongding, a former adviser to the central bank, said in an interview on Feb. 10 that China should seek guarantees that its U.S. debt holdings won’t be eroded by “reckless policies.” While Wen used the Chinese word for “guarantee” in his answer, it was translated into English as “ensure.”

Delegates of China’s legislative advisory body suggested that the biggest foreign holder of U.S. debt diversify away from Treasuries into more risky assets at the annual meeting that started on March 3.

Jesse Wang, executive vice president of China Investment Corp., said on March 4 that his $200 billion sovereign wealth fund may invest in “undervalued” commodity assets. Zhang Guobao, head of the National Energy Administration, said China should invest more in commodities instead of hoarding the U.S. dollar, the official Xinhua News Agency reported on March 7.

“We have adopted a principle of diversification with our foreign-exchange investments,” said Wen. “So far, our holdings are generally safe. China will mainly use the reserves for outbound investments and trade.”

To contact the reporter on this story: Eugene Tang in Beijing at eugenetang@bloomberg.netJudy Chen in Shanghai at xchen45@bloomberg.net
Last Updated: March 13, 2009 00:08 EDT

 

Very important question : what kind of tea is he enjoying while addressing his "concerns" ?

 

Maybe a one notch downgrade on US treasuries?

But our Treasuries are insured with ICBMs.

 

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"But he also conceded that it would be difficult to meet the government’s 2009 goal of an 8 percent growth in G.D.P., a rate that government experts have repeatedly said was needed to create sufficient new jobs and reduce the chance of social unrest. "

http://www.nytimes.com/2009/03/14/business/worldbusiness/14china.html?_r=1&hp

This is fucking ludicrous. China has to maintain 8% GDP growth every year to keep everything from going apeshit?

Isn't this a ticking time bomb? The entire world economy is built on a house of cards. WE ARE ALL FUCKED NOW!!!

 

Never before has an official head of state or anyone near that level publicly questioned the very integrity and soundness of U.S. Treasuries.

The importance of this can't be overstated.

It's a shot across the bow and a direct, provocative measure of historically unprecedented example.

 

Why shouldn't he???

I wouldn't lend money to my own govt.

 

What the politicos do not or do not care to realize is that there should really be some question as to where several $trillion is really going to come from....

Also for any part of the deficit that is monetized....just what is the procedure for "demonetization" ?

But seeing how they do not care about the quantitative effects of policy....in that they do not even completely read the bills they sign....What does this suggest ?

Utter carelessness ....and economic negligence....

And they want to impose legal largesse with flawed policy that was never conceived properly ?

The outcome is certainly matching....

Very sloppily done....

 

I'm surprised it took so long. There is not a single country in the world where the car industry is collapsing as it is in the US or where housing is being hit that hard.
There is merely something called as healthcare and as spendinglimits on creditcards are reduced the US consumption build on credit is hit very hard also.

Jeremy Grantham, an expert on '"bubbles" like the internetbubble estimates that the US has to reduce it's debts by at least 10,000,000,000,000 us$ to turn the economy healthy again. How are they going to do that? Bailing out thalf the american economy costs money, so it's just the opposite of what is needed.

 

spike500

Jeremy Grantham, an expert on '"bubbles" like the internetbubble estimates that the US has to reduce it's debts by at least 10,000,000,000,000 us$ to turn the economy healthy again. How are they going to do that? Bailing out thalf the american economy costs money, so it's just the opposite of what is needed

.......................................................................

Grantham is correct....

Government would have to dramatically reduce spending....and become extremely tax friendly to new business....

And what are they doing ? The opposite....