China 'worried' about safety of U.S. Treasuries
By Michael Wines and Bettina Wassener
Published: March 13, 2009

BEIJING: China, the world's biggest holder of United States government
debt, expressed concern Friday about the safety of those assets as
American deficits have ballooned with costly stimulus and bailout
packages aimed at rescuing the economy.

The Chinese prime minister, Wen Jiabao, said the country was "worried"
about its holdings of U.S. Treasuries and called on the United States
to provide assurances that the investments were safe, and that China
was watching United States economic developments very closely.

"President Obama and his new government have adopted a series of
measures to deal with the financial crisis. We have expectations as to
the effects of these measures," Wen said at a news conference in
Beijing after the final session of the National People's Congress, the
Chinese legislature.

"We have lent a huge amount of money to the U.S. Of course we are
concerned about the safety of our assets. To be honest, I am
definitely a little worried."

China has the world's largest reserves of foreign exchange thanks to
years of double-digit growth in the years that preceded the financial
crisis that began in the United States in 2007. Beijing has been
deploying much of its reserves in increased purchases of U.S.
Treasuries and the financing of major investment projects designed to
prop up flagging growth at home.

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jailedAnalysts estimate that nearly half of China's $2 trillion in
currency reserves are invested in U.S. Treasuries and notes issued by
other government-affiliated agencies.

Those Chinese investments have helped assure the stability of the U.S.
Treasury market despite the economic convulsions of the last year, and
some economists have warned of alarming consequences should the
Chinese investments stop propping up the market for American public-
sector debt.

During her visit to China last month, Secretary of State Hillary
Rodham Clinton sought to reassure Beijing that those holdings remained
a reliable investment.

Wen sought added reassurances on that front on Friday, calling on the
United States to "maintain its good credit, to honor its promises and
to guarantee the safety of China's assets."

Wen did not specify China's concerns about the safety of its
investment in American debt. But some economists have cited fears that
the dollar's value will depreciate over time, lowering the value of
China's holdings.

"In the short run, the dollar is appreciating" because global
investors see the American currency as a safe haven at a time of
crisis, Bai Chong-En, who heads the economics department at Tsinghua
University in Beijing, said in a telephone interview.

"But we don't know what's going to happen in the long run. If the
American stimulus package is financed mainly by borrowing, then that
may affect the future value of Treasury securities."

Some experts also cite fears that inflation will erode the dollar's
value. And some believe that China's investment in American debt is
now so vast that, should it need foreign exchange in some future
emergency, it would be unable to sell its Treasury securities without
driving down their price.

"The only possibility, really, is that China will have to hold these
bonds until maturity," said Shen Minggao, the chief economist at
Caijing, a Beijing-based business magazine. "If you start to sell
those bonds, the market may collapse."

At Friday's news conference, Wen also stressed that China stood ready
to expand its already sizeable stimulus measures if the global
slowdown required extra action.

Beijing in November announced a stimulus package of 4 trillion yuan,
or $585 billion, focused on infrastructure spending, and Wen said
China had enough resources — "adequate ammunition," is how he phrased
it — to spend more in a bid to safeguard jobs.

Jobs, in particular, are a major concern for the Chinese authorities,
who fear potential social unrest as millions of migrant workers' jobs
have fallen victim to the global slowdown.\