Thread: China "worried" about US Treasury holdings

Wen weighs his words carefully. And I think this is the first time he express this sentiment about their concern about the big loan to the US

I agree, other than the US, China would also not benefit from an withdrawal of their loan. My take is that this is not a threat to withdraw. It is exactly what it is, an expression to the US that China is worried or concerned.

imo some posturing after the south seas incident. they have financial leverage on us and announcing it. In the end where is their money safer?

Oh, I didn't notice this until after I wrote. Wen did elaborate further after saying that he was worried.

"We have lent a huge amount of money to the United States," Wen said at a press conference in Beijing's Great Hall of the People. "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."

This link gives the analysis by Business Week.

China Worried After Lending 'Huge Amount' to U.S.

Mar 13, 2009 [BusinessWeek] As China's slumping economy feels the impact of the global recession, Chinese leaders are showing their irritation with the U.S. That's obvious in the ongoing war of words following a near-clash between U.S. and Chinese naval vessels in the South China Sea on Mar. 8. Chinese gripes with the Americans extend to key economic concerns, too, such as U.S. complaints about the Chinese currency and Beijing's suspicion that the U.S. is lapsing into protectionist policies.

On Mar. 13, China's Premier Wen Jiabao ramped up the rhetoric some more. Wrapping up the annual session of China's Parliament, Wen took a swipe at the U.S., which has depended largely on Chinese investment in Treasury bonds to fund its large budget deficit. Over the past few years, China has built up the world's largest foreign reserves, totaling $1.95 trillion, with some two-thirds of that held in U.S. assets, mainly Treasuries. As the global economy has weakened, the value of China's investments has decreased. "We have lent a huge amount of money to the United States," Wen said at a press conference in Beijing's Great Hall of the People. "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."

Another area of sensitivity is the value of China's currency, the yuan. With exports plunging in China, down 25.7% in February, and some 20 million in export factories out of their jobs, Beijing has slowed the appreciation of its currency. Chinese officials already reacted angrily to criticism that it was "manipulating" its currency made by U.S. Treasury Secretary Timothy Geithner during his late January Senate confirmation hearings. Signaling that Beijing has no intention of budging on the issue, Wen spoke out during the morning press conference. "I don't think the [yuan] is depreciating. Since we reformed the exchange rate in July 2005, the yuan has appreciated 21% against the U.S. dollar," the Premier said. "No other country can put pressure on our country to depreciate or appreciate the [yuan]."

Here is Pesek's take, I respect his view but disagree with him regarding China's stimulus package.



China Needs Another $2 Trillion of Treasuries: William Pesek
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http://www.bloomberg.com/apps/news?p...vGY&refer=home
Commentary by William Pesek

March 13 (Bloomberg) -- A record plunge in Chinese exports may be great news for the U.S. Treasury.

It’s simple mathematics. The U.S. economy is more than four times the size of China’s. Growth in China is wildly lopsided toward exports, many of those goods packed on ships bound for America. So, if China wants to stay afloat, it should spend less money building roads, bridges and dams and more on U.S. debt. That would give the U.S. and its consumers the access to easy credit to reignite spending, much of it on Chinese-made goods.

OK, so that’s not about to happen. China is already spooked about its $696 billion of Treasuries. Their value is subject to the whims of Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke.

You still have to wonder if domestic stimulus is the best way for China to go. It’s only a matter of time before China adds to the 4 trillion-yuan ($585 billion) spending plan unveiled in November. As global demand slides, China’s stimulus needs will grow exponentially. There are few signs it will be enough to ensure China’s projected growth of 8 percent in light of the 26 percent plunge in exports in February.

China, it’s often said, can spend its way out of this crisis. Throwing lots of money at the problem will soften the blow, yet it won’t be enough with the world slump intensifying. The key to China getting back to the all-important 8 percent growth level is a global recovery. Basically, that means the U.S.

$14 Trillion Gorilla

That’s why buying more U.S. debt makes sense. I’m not saying this because I’m American. This isn’t about economic nationalism. It’s just that the sheer size of the U.S. economy makes it a $14 trillion gorilla when officials in Beijing, Tokyo or Singapore grapple with safeguarding growth.

Malaysia, for example, plans to spend 60 billion ringgit ($16 billion) to support its export-dependent economy. Expect fiscal-stimulus packages of similar magnitude to sweep across Asia in the months ahead. Southeast Asia is experiencing this global crisis in slow motion. Even though most economies are still growing, the worst is yet to come.

Savings-rich Asia could almost fund a U.S. budget deficit that is sure to reach previously unthinkable levels over the next two years. And, really, it could be in the region’s best interest to do so.

Hillary Clinton’s visit to China last month dramatized the point. She didn’t exactly arrive with her hat in her hand, yet it was surreal to see the U.S. secretary of State hawking bonds.

China’s Interest

“Our economies are so intertwined,” Clinton told Dragon Television in Beijing. “It would not be in China’s interest” if the U.S. were unable to finance deficit spending to stimulate its stalled economy.

Clinton was referring to the Group of Two, an entity that has eclipsed the Group of Seven nations. The G-7 has been useless in this crisis. The G-2 is the key to restoring global demand.

Japan’s economy may be the second-biggest at $4.4 trillion, but it has its own problems. Germany’s economy is roughly the same size as China’s and it, too, might benefit more from a U.S. snapback than domestic stimulus.

President Barack Obama and Geithner need to get real about the magnitude of U.S. stimulus needs. Getting the U.S. off life- support may require another $2 trillion. Making that case to a disillusioned public and Republican leaders arguing for less public spending won’t be easy. They should begin laying the groundwork immediately.

Paying for It

The next step, of course, is paying for it. That’s where Asia comes in. Rebalancing the global economy will require Americans to become a bit more Asian -- consuming less and saving more -- and for Asians to become a bit more American. It’s not an easy transition, and in the meantime, expect U.S. officials to unleash a massive buy-bonds campaign.

Admittedly, this whole argument is politically incorrect. Asia lending the U.S. even more money would be highly unpopular. The U.S., Asians often point out, was slow to help this region during its 1997 crisis. And why bail out a country that is so successfully exporting its own crisis?

The answer is that Asia is heading into a highly turbulent environment. Governments can spend all they want on stimulus efforts, and they may help at the margin. For better or worse, though, restoring global growth is more of a U.S.-centric exercise than many in Asia and Europe might like to admit.

That inconvenient fact makes it pointless for China to suddenly dump its Treasuries. It’s just not an option for the world’s third-largest economy.

U.S. officials used to fret about the Japanese doing that. Concerns increased after Prime Minister Ryutaro Hashimoto said in June 1997 that “several times in the past, we have been tempted to sell large lots of U.S. Treasuries.” It never happened. The reason: It can’t, and especially now.

China would cannibalize its outlook by curtailing its U.S. debt purchases. It may have more to gain from doing the opposite.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net
Last Updated: March 12, 2009 15:00 EDT

There seems to be a consensus on WAB and elsewhere that regardless of how much trouble holding on to US securities might be, China and other East Asian countries may always be relied on to take up more US debt. The rationale given is that doing would be in the interest in these countries, since it would essential boost US consumption of goods manufactured by the creditor nations, which have predominantly export driven economies.

I find this troubling, since it allows American policymakers to become lax about this issue. True, the eastern economies may not dump their dollar bonds, but they can certainly go slow on procuring more. The opinion that failing to absorb dollar debt can be harmful for export oriented economies may be true in the short term, but if these economies are able to drive up internal consumption (which would be a result of more people holding jobs) than that would be less of a problem in the future. Also, with intra-regional trade booming, exports to the US would have a less that usual share, and correspondingly, failure of US consumption may have less of an impact. Already, intra-regional trade account for more than 50% of total trade in Asia, with emerging countries increasing their share (source: www.imf.org).

The idea behind this post is not to say that China and other asian economies can now effectively decouple themselves from the US (they can't, atleast not now), but as a warning that US policymakers should not grow too complacent about accepting China as a ready market for US securities.

Originally Posted by antimony

The idea behind this post is not to say that China and other asian economies can now effectively decouple themselves from the US (they can't, atleast not now), but as a warning that US policymakers should not grow too complacent about accepting China as a ready market for US securities.

I agree, this is more along the lines of my take, I know that quitting the Dollar period is not an option, but there has to be a point where china feels it would be better suited to invest future dollars (little d) on its own/regional consumers, rather than prop US markets. I just wonder what the last straw would be, if there is one.

US reassures China on investment

http://news.bbc.co.uk/1/hi/world/asi...ic/7942924.stm

The White House has sought to assure China that its $1 trillion (£0.7tn) in investments in the United States is safe despite the economic downturn.

"There is no safer investment in the world than in the United States," said White House spokesman Robert Gibbs.

Chinese Premier Wen Jiabao earlier voiced concern and urged the US to remain "a credible nation".

China's huge US bond holdings make it the country with the most money invested in America.

Mr Wen added that his government was ready to introduce new economic stimulus measures "at any time".

He said there was enough "ammunition" to add to a 4tn yuan ($586bn; £421bn) package already announced.

He was speaking at the end of China's annual parliamentary session - the only time he takes questions from reporters.

'Sound stewards'

Earlier, US President Barack Obama's chief economic adviser sought to assure China its investments in the US were safe.

Larry Summers said Washington would be "sound stewards" of the investments.

Mr Summers said there was an "excess of fear" among Americans about the state of the economy.

He added there were some signs that were modestly encouraging, such as improved figures on consumer spending.

President Obama's economic team are doing their best to lift the gloom and talk up the positives about the US economy, the BBC's Jonathan Beale reports from Washington.

This is proving hard as America spends and borrows billions of dollars to lift itself out of recession.

China is now effectively bankrolling much of that debt, our correspondent notes, with $1tn invested in US treasury bonds and other assets.

Mr Wen had said: "I'd like to take this opportunity here to implore the United States... to honour its words, stay a credible nation and ensure the safety of Chinese assets."

Need for confidence

Although Mr Wen said he expected China and the rest of the world to be better off in 2010, he said the government was ready to face tougher times.

"We have prepared contingency plans to handle greater difficulties," he said.

"We have prepared enough ammunition and we can launch new economic stimulus policies at any time."

He said confidence was "more important than gold or money" in overcoming the world's financial troubles.

"Only when we have confidence can we have courage and strength, and only when we have courage and strength can we overcome difficulties."

Official figures released this week showed that Chinese exports had plunged by more than a quarter in February from a year ago, to $64.9bn, and imports fell by 24.1% to $60.1bn.

The Chinese government is targeting annual growth of 8% and wants to boost consumption and raise consumer demand.

Correspondents say the Communist Party fears that if annual growth slips below 8%, there will be social instability.

Originally Posted by snowhole

US reassures China on investment

http://news.bbc.co.uk/1/hi/world/asi...ic/7942924.stm

Yes, Obama repeats this reassurance.

Obama Says Investors Can Be Fully Confident in U.S.

March 14 (Bloomberg) -- President Barack Obama said investors can have “absolute confidence” in Treasury bills as he sought to assuage China’s concern about the safety of its holdings of U.S. debt.

“Not just the Chinese government, but every investor can have absolute confidence in the soundness of investments in the U.S.,” Obama said today ...

But in this financial climate, investors cannot afford to trust just words of reassurance. Many of them trusted Lehman Brothers, Madoff, etc and placed loads of mony. Just the day before, Paul Volker says this of the economy.

Volcker says markets face big economic problems

WASHINGTON, March 13 (Reuters) - U.S. President Barack Obama said on Friday he spent every day working on trying to get credit flowing in the U.S. financial markets, and economic adviser Paul Volcker said it would take time to work out the problems in the financial system. ...

Is me, or the US dollar is the new "People's currency"?




Obama soothes China on US debt

http://www.google.com/hostednews/afp...e2WQ7_iRb3ZkMw

WASHINGTON (AFP) — President Barack Obama has said that China could have "absolute confidence" in the American economy, after Beijing pointedly questioned the safety of its huge haul of US government debt.

Obama took up comments by China's Premier Wen Jiabao on Friday, which represented a rare assessment by Beijing on the health of the US economy and the prospects for China's hundreds of billions of dollars in Treasury bonds.

"Not just the Chinese government, but every investor can have absolute confidence in the soundness of investments in the United States," Obama said after meeting Brazilian President Luiz Inacio Lula da Silva at the White House.

"There is a reason why even in the midst of this economic crisis you have seen actual increases in investment flows here in the US."

"I think it is a recognition that the stability not only of our economic system but also our political system is extraordinary."

Obama said that his comments were applicable to both US Treasury instruments and investments in the US private and industrial sectors.

Wen told reporters in Beijing on Friday that he was concerned about China's huge stake in the US economy as it endures the worst crisis in generations.

"We have lent huge amounts of money to the United States. Of course we are concerned about the safety of our assets," Wen said.

"To be honest, I am a little bit worried and I would like to ... call on the United States to honor its word and remain a credible nation and ensure the safety of Chinese assets."

Wen's comments caused a stir in global markets, and were the latest disturbance to the critical US-Chinese relationship early in Obama's administration.

Last week, military tensions rose after the United States said Chinese boats harassed the US Navy surveillance vessel Impeccable in the South China Sea, forcing the ship to take emergency action to avoid a collision.

Beijing said the vessel was on a spying mission.

China also balked at US comments on the human rights situation in Tibet -- but both sides tried to smooth over the row with Foreign Minister Yang Jiechi's visit to the White House on Thursday.

Beijing held 727.4 billion dollars in US Treasury bonds at the end of last year, just ahead of Japan, the holder of 626 billion dollars in bonds, according to US government data.

As the largest creditor to the United States, China is "extremely interested in developments in the US economy," Wen said.

Analysts say a loss of confidence in US Treasury securities could cause a dramatic drop in the dollar and force Washington to pay higher interest rates.

In February, Secretary of State Hillary Clinton asked China to keep on buying US debt, saying it could help jumpstart the flagging US economy and stimulate imports of Chinese goods.

"By continuing to support American Treasury instruments the Chinese are recognizing our interconnection. We are truly going to rise or fall together," Clinton said.

Most of China's foreign exchange reserves, which reached 1.95 trillion dollars by the end of 2008, is believed to be held in the greenback.

White House spokesman Robert Gibbs said Friday that "there's no safer investment in the world than in the United States."

Obama rolled out an audacious 3.55-trillion-dollar budget proposal last month that bristles with economic reforms and spending on healthcare, climate change and education.

The budget forecasts a 1.750 trillion dollar deficit in fiscal 2009, but foresees that figure falling to 1.171 trillion dollars in 2010.

The Chinese reportedly are concerned about the enormous amount of borrowed money, including Obama's nearly 800-billion-dollar stimulus, being used to boost US growth.

Concerns are flaring in China that the stimulus plan could hurt dollar-denominated assets, with some observers urging China to cut US Treasury holdings, the official Xinhua news agency said last month.

Domestic critics have charged that, as a developing country, China should be investing at home instead of subsidizing the world's richest country, or else diversifying into other foreign assets.

Copyright © 2009 AFP. All rights reserved. More »

China has a problem.

They need about $1 trillion dollars for the next stage in their domestic stimulus plan. Unfortunately, borrowing on the world market would bring them into direct competition with the US government for investor dollars.

The alternative is to dump Treasuries, but at this point that could lead to catastrophic collapse of the T-bond bubble.

They could, as some posters suggest, go further in，but all that will do is give Obama more money to piss away on expanding the government. So, like every other stake holder in the American economy, they are really starting to worry.

Ironic how Mr. Wen has now become the leading fiscal conservative in America.