China seeks assurances on US debt

China, the US government's largest creditor, is ''worried'' about its holdings of Treasuries and wants assurances that the investment is safe, Premier Wen Jiabao said.

''We have lent a huge amount of money to the United States,'' Wen said at a press briefing in Beijing today after the annual meeting of the legislature. ''Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the US to maintain its good credit, to honor its promises and to guarantee the safety of China's assets.''

China should seek to ''fend off risks'' as it diversifies its $US1.95 trillion ($3 trillion) in foreign-exchange reserves and will safeguard its own interests, Wen said. Chinese investors held $US696 billion of US Treasuries as of the end of 2008, an increase of 46% from the prior year.

Treasuries have dropped this year as President Barack Obama sells record amounts of debt to fund his $US787 billion economic stimulus package. Merrill Lynch's US Treasury Master index shows the securities declined 0.5% last month, after falling 3.1% in January, the most since April 2004. The dollar has dropped 17% against the yuan since China ended a fixed exchange rate in July 2005.

Treasuries declined, causing the yield on the 10-year US Treasury note to rise 3 basis points to 2.89% in Hong Kong, according to BGCantor Market Data. The yuan was little changed at 6.8380 per dollar. The Shanghai Composite Index of stocks climbed 0.7%.

Stable yuan

''China is worried that the US may solve its problems with the fiscal deficit and banks by printing money, which will stoke inflation,'' said Zhao Qingming, a Beijing-based analyst at China Construction Bank Corp., the country's second-biggest lender. ''If the US can make sure this won't happen, then China will continue to invest.''

US Secretary of State Hillary Clinton urged China, while visiting officials in Beijing on Feb. 22, to continue buying US debt, which she called a ''safe investment.'' She didn't press China on its foreign-exchange policy, backing away from January comments by Treasury Secretary Timothy Geithner that the Chinese government manipulates its currency to boost exports.

China will maintain its policy of seeking a stable yuan, even as gains against the euro and Asian currencies hurt the nation's exporters, Premier Wen said. People's Bank of China Governor Zhou Xiaochuan pledged last week to maintain yuan stability as investors pull money out of emerging-market assets because of slowing global economic growth.

Independent policy

While the yuan has weakened 0.2% against the dollar this year, there has been a ''drastic depreciation'' in the euro and Asian currencies that has put a lot of pressure on Chinese exporters, Wen said. The currency has gained 8.6% against the euro this year and 6% against the Philippine peso.

''Our goal is to maintain a basically stable yuan at a balanced and reasonable level,'' Wen said on the final day of the meeting of the National People's Congress. ''At the end of the day, it is our own decision and any other countries can't press us to depreciate or appreciate our currency.''

Collapsing exports have dragged the economy to its weakest growth in seven years and eliminated the jobs of millions of migrant workers. Wen reaffirmed China's target of an 8% expansion in 2009 as economies from the US to Japan contract, saying the goal was ''difficult but possible'' to achieve.

Stimulus plans

China can add ``at any time'' to 4 trillion yuan ($900 billion) of stimulus measures to revive the world's third- biggest economy, Wen said. Gross domestic product expanded 6.8% in the fourth quarter, compared with 9% for all of last year and 13% for 2007. Continued…