China will Continue to Invest in the United States Treasury Bonds

| March 25th, 2009

20090325-US-treasury-01

From Sohu

Xinhua News, Beijing, March 23rd (Jingjing TAN, Zhengyan XIONG) Reports: Xiaolian HU (胡晓炼), the Deputy Governor of People’s Bank of China indicated on March 23rd that China will continue to invest in U.S. treasury bonds, but at the same time China would also concern about the fluctuations in the value of U.S. treasury assets.

Xiaolian HU made the above remarks on behalf of the Ministry of Foreign Affairs at the Chinese-Foreign media press briefing on the day of when national president Jintao HU (胡锦涛) is attending London Financial Summit.

When answering questions on the United States treasury security, she said “The investment of U.S. treasury bonds is an important component of China’s foreign exchange reserves investment, thus we naturally are very concerned about the safety and profit of U.S. treasury bonds.”

Xiaolian HU thinks the safety of treasury bonds should be considered from different point of view. In general, treasury bonds have lower credit risk, but in terms of the market risk the value of the assets in different period will show ups and downs.

She said that as an important component of China’s foreign exchange reserves investment, China would continue to invest in U.S. treasury bonds, but at the same time would concern about the fluctuations in the value of U.S. treasury assets.

In response to questions about the global monetary system diversity, Xiaolian HU said that the Chinese side would think that they could research on this question and explore, but the dollar in the international monetary system is still the most important international trade settlement, pricing, currency of payment, and also is the major currencies of most countries financial investment. Chinese would pay more attention to strengthen the U.S. dollar-based international monetary system supervision.

When speaking of the role of Renminbi at trade, Xiaolian HU said, in order to further promote the development of foreign trade, China has prepared to implement Renminbi denominated trade, settlement, payment in Hong Kong and Renminbi trade settlement in Guangdong Pearl River Delta Region and ASEAN.

Outlook: Look Out for sudden change in U.S. treasury bonds risk

U.S. President Obama launches a new round of program to steady the financial institutions and stimulate the economy, but at the same time bringing a large fiscal deficit. Its first Budget shows a deficit of this fiscal year will increase to 1.75 trillion U.S. dollars, accounting for 12.3% of GDP %, the highest proportion since World War II. Such a huge funding gap must be financed in the market. The experts worry, once the U.S. government bond issues are in full swing, the U.S. treasury security that was considered to have the highest return and the most stable investment tools is likely to encounter a large-scale sell-off, resulting in increased yield and price drop. This will cause overseas investors suffer heavy losses, and also heavily damage the U.S. economy.

Viewpoint of Xinhua: U.S. Accelerating in Printing Currency Brings the Risk to Global Economy

When will the global economy recover? March 22nd, at the opening of “China Development High-Level Forum”, the participants believed that, the current round of crisis is a big liquidation of imbalance international monetary system since the half century. The large-scale stimulation program is expected to rally the global economy however in order to fully end this crisis still depends on all countries joining hands in building a new framework of global financial system.

On the 18th of this month, the U.S. Federal Reserve announced that they would purchase up to 300 billion U.S. dollars long-term treasury bonds and 1.25 trillion U.S. dollars mortgage securities. As the market participants have concerned, the Swiss Central Bank intervened into the market and started selling the Swiss franc on the 12th of this month. They have fired the first shot of “devaluation of the currency war”, but the Federal Reserve made a far-reaching impact of the shot. Following this news, the dollar quickly took a dive, oil price reached at 50 U.S. dollars on that day, gold hits a new high since the past month, and the global bulk commodity prices generally rose.

Herald Comment: Obama, Why Should Chinese Believe You?

On March 13, Premier Wen Jiabao (温家宝) spoke bluntly about the concern of buying U.S. treasury bonds at the meeting of Chinese-Foreign press conference. He once again reiterated the demand that the United States should keep its promise to guarantee the safety of Chinese assets. U.S. made the quick response, president Obama personally sent a message that all the investors in the world including China should have “absolute confidence” in the safety of its investment in U.S.

Obama’s declaration pays more for the verbal appeasement; the concern of China is inevitable. Therefore, to keep the Chinese to be assured, U.S. should not just do the lip service, but should take practical action. Taking into account the demands of China’s policy is to ensure the safety of the purchased U.S. bonds. The safety can be divided into two major categories of absolute profit safety and relative profit safety. Therefore the U.S. Government has two policies to choose from.

Obama: China and other countries should increase their right to speak at the relevant international financial institutions.

Obama expressed he was looking forward to the forthcoming meeting with President Jintao HU. Obama said I was pleased with making progress in a series of important issues during the recent visits made by both foreign ministers. The United States and China both have the important international responsibility, the United States will actively engage in developing a stronger relationship, joining forces to deal with various global issues and challenges.

Obama said that currently United States and China should strengthen cooperation and work together to cope with the international financial crisis. He said I do appreciate China’s measures of expanding domestic demand and sustaining economic growth. United States is doing the same as well. U.S. is willing to strengthen communication and coordination with China, and to play an important role in order to stable international financial markets, promote world economic recovery, strengthen the financial system supervision and reform the international financial institutions to. He said China and other countries should increase their right to speak at relevant international financial institutions.

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