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Riding The US$ Tiger [Copy link] 中文

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Post time 2009-3-13 22:25:25 |Display all floors
Riding the US$ Tiger is like putting all your eggs in one rotten basket - the US whichever way you
look at it.. And that is no financal foresight at all.

Granted that some of these foreign reserves can be locked in US Treasuries for purposes of trade with the US,
it is likely that some foreign trained Chinese financial 'experts' were responsible for the present China 'predicament'.

The failed US  'financial architecture' is a wake-up call .........for those procrastinating financial 'experts' in China.

With money, one can develop, invest, so many countries other than the US and China can make a great
leap forward in diversifying its sovereig fund, reserves.......

It is better late than never. Time to dismount this toothless and dying paper US$  Tiger ......


Wen puts US honor on the debt line

HONG KONG - Chinese Premier Wen Jiabao, faced with growing concern that United States efforts to stem the financial crisis will hit the value of China's vast holdings of US debt, used the world's press on Friday to demand that the US honor its promises.

Wen told a press conference after the conclusion of a two-week meeting of the country's legislators that he was "a little bit worried" about the safety of Chinese assets in the US, and called on the US "to maintain its good credit, to honor its promises and to guarantee the safety of China's assets." He also reiterated that other countries had no right to push China into appreciating its currency, the yuan.

Various efforts by the US to resolve the country's financial crisis by selling ever more debt to pump money into the financial system are raising concern that this will drive up inflation and pull down the value of the US dollar, which would cut the value of debt held by China, the largest creditor of the US.

"We are very concerned about the economic developments in the US economy," Wen said. "The US administration of President Barack Obama has taken a series of measures to counter the financial crisis. We look forward to the effectiveness of those measures."

Wen called on the US government to ensure that the value of Chinese assets in the US is maintained amid the crisis.

"We have lent a huge amount of money to the United States and of course we're concerned about the security of our assets and, to be honest, I am a little bit worried," Wen said in Beijing after conclusion of the second session of the 11th National People's Congress (NPC). "That's why here I would like to urge the US to keep its commitment and promise to ensure the safety of Chinese assets."

About US$1 trillion of China's foreign exchange reserves, which increased 27% last year to $1.95 trillion, is invested in US government bonds and other securities. China held $696.2 billion in US government bonds as of December, up from $681.9 billion a month earlier, according to the US Treasury international capital flow report released on February 18.

China has accelerated its purchases of Treasury debt since August 2008, when holdings grew by $23.7 billion month-on-month to US$541.4 billion. By September, it had holdings of Treasury debt worth $585 billion, more than Japan, previously the top holder of US Treasuries. In August 2008, Japan cut its holdings to $573 billion from $586 billion.

As the global financial crisis sends asset values plunging, mainland leaders are under growing pressure at home to diversify the country's foreign exchange reserves.

In December at the fifth Sino-US Strategic Economic Dialogue in Beijing, Vice Premier Wang Qishan urged the US to adopt every measure necessary to stabilize its economy and ensure the safety of China's assets and investments in the United States.

Pauline Loong, senior vice president in charge of China policy and risk research at CIMB-GK Securities (HK) Ltd, said she did not think China would dump its dollar holdings .

"I cannot see Beijing dumping its dollar holdings," she said. "If the market thought there was anything to the talk, there would be a scramble to dump. The result would be exactly what Beijing would not want to see: a massive fall in the value of its dollar holdings. Also, Beijing has few alternatives. What is it going to switch into? There are few markets that are as deep and liquid as the dollar - and to park $2 trillion in exchange reserves, you can't be dabbling about.

"The fact that Premier Wen talks about being worried about the value of the country's dollar holdings is a good sign. If he is going to dump the dollar, he is not going to talk about it," she said.

Even so, a two-day gain in Treasuries juddered to a hold on Friday, with the yield on the benchmark 10-year note rising six basis points to 2.91% as the price of the 2.75% security due in February 2019 fell $4.69 per $1,000 face amount, to 98 19/32 in early London trade, according to Bloomberg.

Wen reiterated China's principle of guaranteeing the "safety, liquidity and good value" of its foreign exchange reserves and diversifying the investment of the reserves.

"On the foreign reserves issue, the first consideration is our national interest ... But we also have to consider the stability of the overall international financial system, as the two factors are interlinked," Wen said. "Currently, our reserves are generally safe."

Wen also ruled out any further strengthening of the Chinese currency in the intermediate future. He said no country had the right to press for either the devaluation or appreciation of the yuan. A stronger yuan would drive up the price of exports to the US while making it cheaper for US goods to be imported to China.

The yuan "has appreciated since the European and Asian currencies have dropped in recent year, in addition to the yuan's 21% appreciation against the dollar since July 2007", he said.

Loong, however, said there was a risk of incorrectly interpreting such comments as indicating policy was set in stone.

Governments everywhere, "not just in China, are devising strategies and coming up with policies on the run. If economic data in the coming months surprise on the upside or downside, then Beijing will need to revise policy," she said.

China, whose currency is not at present fully convertible into other currencies, is moving to make it more fully used in international trade. Wen said that a plan for the settlement of trade in yuan had been formulated and would be carried out as quickly as possible once it was approved by the State Council, or cabinet.

A pilot project involving yuan-denominated settlement of trade deals would start from Hong Kong, Guo Qingping, assistant governor of the People's Bank of China, or the central bank, said on Wednesday in Beijing.

Referring to China's ability to survive in the global downturn, Wen said the country was fully prepared for even worse conditions and had long-term preparations "with plenty of ammunition" to cope.

"We are ready to roll out new stimulus policies at any time," Wen said, without giving details. China last November announced a 4 trillion yuan (US$585 billion) stimulus package to help boost the domestic economy as exports slumped.

Loong said the Chinese government would do whatever it took to support economic growth, but timing remained a question.

"The 4 trillion yuan fiscal spending needs time to kick in and work its way through to the economy. Beijing, we believe, will not fire until it can see the white of the enemy's eyes. Why waste bullets?" she said.

"Any announcement of new stimulus money in the coming weeks as the market awaits news of the first quarter of 2009 gross domestic product [GDP] numbers is both good and bad news - good because it gives the government breathing space to tackle the basic problems of the economy; bad because the government clearly sees a need to prevent a seriously hard landing," Loong said.

Details of the package, including how much is actually new spending, are not yet clear. Wen conceded that some projects in the stimulus package, such as roads and railways, were included in the country's 11th five-year plan. Global stock markets declined sharply at the start of the NPC meeting when Wen, contrary to expectations, declined to announce any new stimulus funding.

China's stimulus package plan was not fully understood by the world, he said. "Rumors and misunderstanding set the world stock market on a roller coaster ride," he said.

Wen emphasized that although China would have difficulty in achieving its goal of 8% economic growth this year, it would be possible with "considerable efforts", given the advantages of a huge domestic market, a large amount of labor and a sound and stable financial sector.

"With a 1.3 billion population ... China has a bigger market than those of the Europe and the United States," Wen said.

Even so, confidence is what China needs most to carry out its all-around economic stimulus package, he said.

"We have proposed a stimulus package only less than half a year after the financial crisis began. To implement the plan, I still believe confidence is still the first and foremost thing," Wen said.

By Olivia Chung,  Asia Times
Mar 14, 2009

[ Last edited by laoda1 at 2009-3-13 10:27 PM ]

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Post time 2009-3-13 22:52:14 |Display all floors

Thanks for uploading this very important article.

The global financial system needs a rigorous overhaul at this time.  There's nothing dirty the West would NOT do to harm Chinese interests.

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Post time 2009-3-14 19:14:42 |Display all floors

Obama Administration Tries to Reassure China on Treasury Debt

Now the cat is out of the bag, Treasury debt works both ways - both the creditors and debtor have
manipulative convenient leverages .......

Reassurance is only good when it benefits both. Thus when US political and economic self survival
becomes the over-riding consideration - when US$ depreciates due to the absence of economic fundamentals
and lack of international confidence ......China reliance on their 'word' becomes a deserving self-inflicted damage.....

The decline of the US$ is a foregone conclusion and the World knows it. ..........

Thus the clamour for the replacement of the US$ as the World Reserve Currency and the trend towards more and
more Common Currency among group of nations ....and the increasing trend to conduct trade among nations in non-US$.....

China cannot trust the US to look after China's interests - this is simply stupid and outright naivety--- and that is not
only borne out by US's historical treatment of China but also consistently in current geo-political and geo-economic
events and developments......

To add insult to 'injury',  [U.S. Secretary of State Hillary Clinton urged China, while visiting officials in Beijing
on Feb. 22, to continue buying U.S. debt, which she called a “safe investment.”]

"""..............continue buying U.S. debt, which she called a “safe investment."""

----and this will be economic suicide for China        


March 14 (Bloomberg) -- The U.S. sought to ease Chinese Premier Wen Jiabao’s concern about the security of his country’s investments in U.S. government debt, reiterating pledges to cut the budget deficit in half in four years.

“There’s no safer investment in the world than in the United States,” White House Press Secretary Robert Gibbs said yesterday at a briefing in Washington.

Gibbs was responding to comments from Wen that China, the U.S. government’s largest creditor, is “worried” about its holdings of Treasuries and wants assurances that the investment is safe. “I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets,” Wen said at a press briefing in Beijing.

President Barack Obama is relying on China to sustain buying of Treasuries amid record amounts of U.S. debt sales to fund a $787 billion stimulus package and a deficit this year forecast to reach $1.5 trillion. Investors abroad own almost half of all U.S. debt outstanding, and China last year overtook Japan as the biggest foreign buyer.

Wen’s comments contributed to a decline in Treasuries yesterday. Yields on benchmark 10-year notes rose as high as 2.96 percent, from 2.85 percent a day earlier, and closed at 2.89 percent.

White House National Economic Council Director Lawrence Summers, asked yesterday about Wen’s remarks, said overseas “confidence” in Treasuries would be hurt without the administration’s steps to end the economy’s decline.

Japan, China

China held $696 billion in U.S. Treasury debt as of Dec. 31, more than Japan’s holdings of $578 billion. Foreign holdings of U.S. Treasury debt at the end of last year totaled $3.1 trillion.

The Treasury also offered a response that sought to reassure investors.

“The U.S. Treasury market remains the deepest and most liquid market in the world,” Treasury spokeswoman Heather Wong said in an e-mailed statement. “President Obama is committed to taking the steps necessary to restore growth and put this country on the path of fiscal sustainability, including cutting the long-term deficit in half over the next four years.”

During the first five months of fiscal 2009, which began Oct. 1, the U.S. budget deficit swelled to a record $764.5 billion for the period, compared with a $265 billion shortfall during the same period a year earlier. The shortfall this year already has exceeded the record $459 billion gap for all of 2008.

‘Stronger Position’

The administration is “tackling many long-ignored problems, ensuring that the U.S. will be in a stronger position than ever,” Wong said. “We are facing whatever challenges come up and will continue to do so.”

Treasuries have handed investors a loss of 2.7 percent in yuan terms this year, according to Merrill Lynch & Co.’s U.S. Treasury Master index. Chinese holdings of the securities surged 46 percent last year, according to Treasury Department data.

“Of course we are concerned about the safety of our assets,” Wen said after an annual meeting of the legislature. “To be honest, I am a little bit worried.”

Diversifying Reserves

China should seek to “fend off risks” as it diversifies its $1.95 trillion in foreign-exchange reserves, Wen said. Yu Yongding, a former adviser to the central bank, said in an interview on Feb. 10 that the nation should seek guarantees that its Treasury holdings won’t be eroded by “reckless policies.”

Treasuries have benefited from demand as a haven in the past two years as financial companies reported $1.2 trillion in credit losses. China boosted holdings of government debt as it lost more than $5 billion from investing $10.5 billion of its reserves in New York-based Blackstone Group LP, Morgan Stanley and TPG Inc. since mid-2007.

“China won’t sell the U.S. debt now as that will only drive down Treasury prices, hurting not only the U.S. but also the value of its own investments,” said Shen Jianguang, a Hong Kong-based economist at China International Capital Corp., an investment bank partly owned by Morgan Stanley.

U.S. Secretary of State Hillary Clinton urged China, while visiting officials in Beijing on Feb. 22, to continue buying U.S. debt, which she called a “safe investment.”

By Rebecca Christie and Kim Chipman

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Post time 2009-3-14 19:33:40 |Display all floors
Yeah, I saw this one too.

They cannot even assure themselves about the safety of anything, so how can they talk about assurance to anyone else?

I don't understand why Wen would even consider buying more T-bonds from America.

The more we let them borrow, the more we become hostage to their whimsical ideas, because they can always find ways to devaluate the USD so that Chinese loans will become worthless.

The only way to go is to stop buying T-bonds, buy equipment and other inventories on the cheap and prepare for struggle in the South China Sea or elsewhere.

Why are we so afraid of the borrower that we can't stop lending him money?

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Post time 2009-3-14 19:50:06 |Display all floors
edited by author - double posting

[ Last edited by dion13 at 2009-3-14 08:12 PM ]

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Post time 2009-3-14 19:51:13 |Display all floors
deleted by author - double posting

[ Last edited by dion13 at 2009-3-14 08:11 PM ]

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Post time 2009-3-14 20:02:39 |Display all floors

link to official US Treasury data

Originally posted by laoda1 at 2009-3-14 19:14
China held $696 billion in U.S. Treasury debt as of Dec. 31, more than Japan’s holdings of $578 billion.  

Those numbers are not exactly accurate. It should be: $727.4 billion and $626.0 billion, respectively.


(link to official US Treasury data on Major Foreign Holders of Treasury Securities)

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