Thread: China "worried" about US Treasury holdings

Originally Posted by Parihaka

Yeah, I've tried finding stuff on it and can't. I'm just curious as to the nature of the Chinese injection of funds into the IMF.

Ok, 40 billion which is short of the 100 B folks initially called for.








http://uk.reuters.com/article/burnin...53501820090406

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Rich China, poor China conundrum as clout grows
Mon Apr 6, 2009 9:19am BST

By Paul Eckert, Asia Correspondent

WASHINGTON (Reuters) - Success in winning China's help with global tasks like reviving the world economy or fighting climate change can depend on which China you're talking to: the established economic powerhouse or the developing country.

China the new power holds $2 trillion in foreign reserves, including about $1 trillion in U.S. debt, and increasingly lectures rich nations on economic management. Developing China has tens of millions of rural poor among its 1.3 billion people and falls in the same World Bank per capita income rankings as Cameroon and Guatemala.

The emergence of China as a heavyweight economic player with a relatively poor population has economists scrambling for new definitions, perplexes policymakers in other countries and has some competitors crying foul.

"I can't think of any other instances where an economy at this relative level of development compared to the other leading countries in the world had such a large role to play in terms of world trade, world finance and overall contribution to the world economy," said Eswar Prasad of Cornell University.

The World Bank groups China among lower-middle-income countries, with $936-3,705 in annual per capita income, based on 2007 data. Countries such as Bolivia, India, Morocco and Syria are also in that grouping of lower-income countries.

The United Nations Statistics Division counts all of Asia excluding Japan as developing countries. China is a developing country under the International Monetary Fund's criteria.

"It's a fair thing for China to say 'We're not rich yet,' and we have to deal with that," said trade expert Derek Scissors of the Heritage Foundation.

Nevertheless, China has raised eyebrows when it appeared to be demanding more rights as an unquestioned economic power while pleading poverty when asked to shoulder greater obligations.

CHANGING THE CONVERSATION

Steve Dunaway, a Council on Foreign Relations scholar, saw this a lot in his former job as IMF China mission chief.

China's line was "that as the number three economy in the world, they want a bigger say in the world economy. But when the discussion came up about additional resources for the IMF, the conversation switched back to per capita income," he said.

China overtook wealthy Germany in 2007 to become the world's third-largest economy behind and the United States and Japan. With Japan sputtering, some economists see China overtaking that rich country by 2012.

In an ongoing debate about funding the United Nations, U.S. critics note that China pays just over two percent of the annual U.N. budget, while the United States pays 25 percent.

Ahead of last week's London G20 summit, senior Chinese leader Wang Qishan reiterated Beijing's call for more power at the IMF. He said China's contributions to the fund should be based on per capita economic output -- not on the size of its $2 trillion in reserves -- the most in the world.

China ended up contributing $40 billion to the IMF kitty for economically troubled countries and won promised reforms that will give China more clout at the fund.

At 175-country climate change talks in Bonn, Germany, this month to work on a new U.N. climate pact, China led developing nations in demanding rich countries to agree to far deeper cuts in greenhouse gas emissions.

Chinese delegate Xu Huaqing bluntly said rich states had to do the most to allow the poor to burn more energy to end poverty.

A Chinese lawmaker elaborated on what he called "unique" features of the carbon emissions of China, which recently surpassed the United States as the world's top emitter of planet-warming gases.

"One feature is that China's emissions are subsistence emissions," Yuan Si, a member of the Standing Committee of China's National People's Congress, said in remarks at the Nixon Center in Washington recently.

"China has the right to make people's lives better. To achieve that goal, China has to consume some energy and has to make some greenhouse emissions," he said.

DANGEROUS HOT AIR

While that line of reasoning seems self-serving, many U.S. climate experts say China has a point.

"Their argument, and it's pretty valid, is that you guys have caused most of the problem -- you've eaten up a larger share than you really should ," said Jake Schmidt, head of climate policy at the Natural Resources Defense Council.

Dan Dudek, chief economist of the Environmental Defense Fund, says a call for historic fairness is "totally valid and that is why there is a genuine insistence that developed nations need to lead."

The World Resources Institute calculates that the United States has contributed 30.3 percent of carbon dioxide emissions from 1990-1999. China's share was 12.2 percent, but it has risen rapidly in this century.

China's industrial competitors in the West don't agree.

U.S. steel industry executives have called for tariffs on Chinese steel if China's steelmakers are not subject to the stringent emission limits Washington is considering adopting.

To a stressed atmosphere and warming planet, the debate is little more than dangerous hot air, suggests Schmidt.

"At the same time that both sides are making valid arguments, the climate's getting worse, global warming's getting worse and both sides of this debate are suffering," he said by telephone from the Bonn negotiations.

"The impact is not related to who causes the emissions," Schmidt said. The real issue is action, he added.

Prasad, a former IMF economist, said questions of where China lies on the development spectrum and what obligations or leniency that entails are "the wrong ones if you want to make progress on what matters to China and the world."

"This was always a bit of a false dichotomy: On many issues, framing the debate this way suggests that what's good for China is not necessarily what is good for the world, or the other way around," he said.

(Editing by Philip Barbara)

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More than once, China has mentioned this. Thay are concern over the management of global reserve currencies. Currently, the main reserve currency is the US Dollar.

China's Wen says key currency countries need watching

Apr 18, 2009 BOAO, China (Reuters) - China's Premier Wen Jiabao said on Saturday that economic polices of countries which issue global reserve currencies require closer supervision as part of building a diversified international monetary system.

His comments, an apparent reference to U.S. economic management that Beijing has blamed in part for the global financial crisis, were twinned with a pledge to promote more international use of the yuan, China's currency.

Wen did not mention the United States by name but he has expressed concern in recent months about the safety of Chinese investments in U.S. dollar assets.

"We should strengthen the supervision of the economic policies of the main reserve currency economies and push forward the establishment of a diversified international monetary system," he said in his opening address to the Boao Forum for Asia, held annually in the southern Chinese province of Hainan.

It was the second time this month that China has made such an appeal, following President Hu Jintao's call at the London G20 summit earlier this month for the International Monetary Fund to strengthen its oversight of reserve currency-issuing economies. ....

http://www.nytimes.com/2009/05/14/op...gewanted=print

May 14, 2009
Op-Ed Contributor
China’s Heart of Gold
By VICTOR ZHIKAI GAO

Beijing

IN China, many people refer to the dollar as mei jin, or “American gold.” Government officials, businessmen and people on the street all use the term. So if a Chinese person tells you that he owes you 100 American gold, don’t expect a big fortune, because he’s planning to pay you $100.

Chinese impressions of the American dollar as the gold standard were so deeply entrenched that they survived President Richard Nixon’s 1971 delinking of gold and the greenback. Around 30 years ago, China’s foreign exchange reserves were as little as $167 million. At one important meeting in the late 1970s, Deng Xiaoping, the leader of China, prophesied to an audience of top government officials: “Comrades, just imagine! One day we may have a foreign reserve as big as $10 billion!” Silence fell on the audience, because that figure seemed so improbable. After a long pause, Deng went on to tell the unconvinced crowd: “Comrades, just imagine! With 10 billion American gold, how much China can do!”

Deng’s view of the dollar reflected his admiration for many positive elements of American capitalism. In November 1986, I served as Deng’s interpreter when he met with John Phelan, the chairman of the New York Stock Exchange, who was visiting Beijing. During the meeting, Deng told him: “You are the rich capitalists with great wealth, and China is still very poor with little wealth. You know finance and capital markets very well. You need to teach China a lot about finance and capital markets. One day in the future, China will also have its own stock exchange.”

That was the prelude to China’s rapid economic growth. China’s foreign reserves are now close to $2 trillion, and around $1.5 trillion of it is invested in dollar assets. With the global financial crisis, the attention of the world often focuses on this huge pile of American dollars in Chinese hands.

What many don’t remember is that for years, there was either a shortage or a feared shortage of American dollars. In the 1980s, for example, the government required everyone to convert dollars into the Chinese currency, the renminbi, which literally means “people’s money.” As a result, American gold became a status symbol. Despite the mandatory conversion into renminbi, many people held onto their dollars, or bought them at inflated exchange rates, if they could find a seller at all.

No one knows for sure when the tide started to turn, or the exact moment when American gold started its slow but seemingly irreversible loss of luster. But now, many shops in China no longer accept dollar-based credit cards issued by foreign banks (the customer pays in dollars, but the shopkeeper is paid in renminbi) and foreigners cannot convert American dollars into renminbi beyond a given quota.

In the past, people held dollars for no immediate purpose. Today, they are more likely to keep them only if they need them to send their children abroad for school, travel or to do business in another country. Over all, the government is becoming more worried about the safety of its investments in the United States, which are largely in Treasury bonds and quasi-sovereign securities issued by Fannie Mae and Freddie Mac.

Beijing recently called for a greater role in international trade for the special drawing rights currency of the International Monetary Fund. But China is also fully aware that the United States can veto an I.M.F. decision. China’s call was more meant to sound an alarm to the United States.

Many Chinese people increasingly fear the rapid erosion of the American dollar. The United States may want to consider offering inflation-protection measures for China’s existing investments in America, and offer additional security or collateral for its continued investments. America should also provide its largest creditor with greater transparency and information.

We still call the dollar American gold. But the United States should not assume that this will never change.

Victor Zhikai Gao is an executive director of the Beijing Private Equity Association and a director of the China National Association of International Studies.

Too good to let this one pass by

“Comrades, just imagine! With 10 billion American gold, how much China can do!”

Booooooooooooo!!!!

Ok, lets let actions speak for themselves.


China keeps buying US bonds despite concerns
AFP: China keeps buying US bonds despite concerns

WASHINGTON (AFP) — China is pumping more money into US Treasury bonds, recent data show, despite concerns expressed in Beijing in recent months over the safety of dollar-linked assets.

Mainland China's holding of Treasury securities jumped to 767.9 billion dollars in March from 744.2 billion dollars the previous month, according to US Treasury data.

The figure does not include those of Hong Kong, China's special administration region, which climbed to 78.9 billion dollars from 76.3 billion dollars.

The statistics showed China sitting comfortably as the top purchaser of Treasury bonds despite years trying to diversify its reserves from the US dollar.

Chinese Premier Wen Jiabao had expressed rare official concern in March over the safety of Beijing's huge US bond holdings but in the same month, according to monthly US Treasury data, Beijing scooped up 23.7 billion dollars of Treasuries, the largest inflow since November.

"This flies in the face of the 'China is diversifying' stories," said Andrew Busch, analyst at BMO Capital Markets, commenting on the fresh Treasury data.

Wen's concerns came amid frustration in Beijing that the nearly 800 billion dollar huge US stimulus measures to prop up the world's largest economy could drive down the value of dollar-based assets.

In addition, China was concerned that a US Federal Reserve move to buy up to 300 billion dollars in long-term US Treasury bonds to ease credit flows could dampen returns on its future bond purchases.

"As much as China is whining about the impact of quantitative easing on the US dollar, their purchases of dollar denominated assets was the strongest since November," said Kathy Lien, director of currency research at Global Forex Trading.

Being the top holder of US Treasury bonds, China is automatically the largest creditor to the United States.

It is also the world's biggest holder of dollar reserves, at nearly two trillion dollars -- roughly double that of Japan, and four times more than either Russia or Saudi Arabia.

"Note that in first quarter of 2009, China's holdings of US Treasuries have increased by 40 billion dollars, whereas its foreign exchange reserves have increased by only seven billion dollars, indicating a continued preference for US Treasuries," said Barclays Capital analyst Chirag Mirani.

Some analysts see the cozy relationship between China's reliance on US bonds as a relatively safe investment and Washington's dependence on Chinese financing to bankroll its economy as a potential nightmare.

They worry that this could delay steps to ease the so called global imbalances driven mainly by America's sinking current account deficit and China's soaring surplus, and which they say are among causes of the current global financial turmoil.

"Never before has a country as poor as China provided so much financing to a country as rich as the United States, and never before has a country that values its independence as highly as the United States relied so heavily on a single country's government for financing," said a report by the Council on Foreign Relations, a US think tank.

"The longer the United States relies on Chinese financing to avoid necessary adjustment -- one where it pays for its imports with exports rather than debt -- the harder the transition is likely to be," said the council's experts Brad Setser and Arpana Pandey.

"Creating a more financially balanced global economy will also be difficult so long as China?s government continues to peg tightly to the dollar and add large sums to its foreign assets," they said.

Some US groups charge China is deliberately keeping its currency weak against the dollar to keep its exports competitive and make huge trade gains.

This is a killing-two-birds-with-one-stone strategy for China. Accumulating assets may not all be financial assets. China needs to stockpile commodity assets as well.

Further down this article is the mention that China is increasing its stockpile of oil to 100 days, instead of the previous 30 days, for strategic as well as asset accumulation reasons.

China’s Stockpiles Are New Sovereign Wealth Strategy, RBC Says

May 18 (Bloomberg) -- China is stockpiling commodities such as copper and iron ore as part of a reallocation of its sovereign wealth amid concern that the value of its dollar assets may decline, according to the Royal Bank of Canada.

“It’s part of an overall desire to decrease its exposure to dollar assets,” said Brian Jackson, senior strategist at Royal Bank of Canada in Hong Kong, in an interview today. China fears the hundreds of billions of dollars the U.S. is spending on bank bailouts and stimulus will cause “higher inflation and a weaker dollar,” he said.

Premier Wen Jiabao has said he is “worried” about the safety of the nation’s $767.9 billion in holdings of U.S. Treasuries and called on the U.S. “to guarantee the safety of China’s assets.” Central bank Governor Zhou Xiaochuan has proposed a new global currency to reduce reliance on the dollar.

“Increased spending on commodities represents a reallocation of China’s sovereign wealth away from the accumulation of financial assets,” Jackson said in a May 15 research note.

China, the world’s biggest consumer of iron ore, boosted imports of the material to a record 57 million metric tons in April. China’s purchases of copper and copper products reached a record 399,833 metric tons last month, compared with 374,957 tons in March. ...

China has been doing that since the Han Dynasty.

One of the last book I read in Classical Chinese form was the "Discourses on salt and iron", a Han Dynasty economic text book, on one side, it argued government should buy up commodity when price is low and release them when price is high as a mean for increase state income and price control. The counter argument also stated in that book; such attempt will lead to corruption, inefficacy , poor quality control, and kill off competition.

Been busy lately, but CFR's foreign exchange reserves update has been released.





http://www.cfr.org/content/publicati...RICS-05-26.pdf