China wants assurance of safety of its debts in U.S.
MIL, Mar 13, 2009
Beijing, China: March 13, 2009, Dr. Raj Baldev, Cosmo Theorist from India - China is well concerned about her debts in United States, which is nearly half of its $2 trillion in currency reserves invested in U.S. Treasuries and notes issued by other government-affiliated agencies and that’s the issue where China looks to be perturbed.
China, therefore, apprehends that its holding in America might be unsafe since the lion’s share of its holding in America looks to be diverted to different stimulus and bailout packages and that’s against its interest of China and may en-risk its holding in the United States, as per the economists. Wen Jiabao, Chinese Prime Minister, admitted that China is watching the economic development of United States and their policy of stimulus and bailout packages, allocated to strengthen their economy and that has created concern in China’s government about the safety of their debts in United States.
The Chinese PM has definitely in mind that President Obama and his new administration have adopted a series of measures to deal with the financial crisis about which China is serious and watching closely whether their policy is affecting China’s investment in America, and wish to be sure that their money is safe and not being transferred to some other heads.
After the final session of the National People’s Congress, the Chinese legislature, Mr. Wen, at a news conference held on Friday in Beijing said:
“Our country is very much worried about its holdings of U.S. Treasuries and would like to call on the United States to ensure us that China’s investments are quite safe”.
China has the largest reserves of foreign exchange and has been using most of its reserves in increased purchases of U.S.Treasuries and financing of major investment projects meant to boost their growth in its own country.
As per NYT, 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.
Mr. 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.”
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Few things to note from the article!
1. China's asset is invested heavily in US Asset. (Close to 1 Trillion USD) Meaning that China's economic recovery depends heavily on US' recovery. (US cannot fall) >> Similar condition applies to Japan economy.
2. This push will leave US with no choice but to keep USD stable in its current valuation. Which means that with most of the countries in the world entering recessionary period, USD will be a safer bet to sail through this economic downturn.
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