China concerned about security of US investments
Funds placed with Treasury and in bonds
SHANGHAI - Chinese Premier Wen Jiabao voiced concerns yesterday about the security of China's massive investments in US government debt, even as he expressed confidence in the economic leadership of President Obama.
"To be honest, we are a little bit worried," Wen said, speaking at the closing news conference of China's annual legislative session.
"We have loaned huge amounts of money to the United States, so of course, we have to be concerned. . . . We hope the United States honors its word and ensures the safety of Chinese assets."
China is America's biggest foreign creditor. About one-half of China's estimated $2 trillion of foreign exchange reserves, the largest in the world, are invested in US Treasury and other government-backed bonds. China's continued holdings and future purchases of American debt are seen as an important part of financing Obama's $787-billion economic stimulus plan.
Wen's comments, coming after a string of otherwise upbeat pronouncements about China's economic prospects, were unusual in that he has rarely spoken up on the issue, nor in such frank terms.
Analysts said they doubted the remarks were impromptu; rather, they may have been intended in part to send a message, perhaps to Americans in particular, about just how much they are reliant on the Chinese for their economic security.
"I suppose you could kind of view it as a shot across the bow," said Mark Williams, Asia economist at Capital Economics Ltd. in London.
Wen gave no indication whether Beijing wants changes in US policy. But economists said his comments reflect fears that higher budget deficits from Washington's $787 billion stimulus package could drive down the dollar and the value of China's Treasury notes.
"China is telling the US to be careful, not to overspend and keep an eye on the dollar," said Kelvin Lau, regional economist at Standard Chartered in Hong Kong. "There are risks that China cannot control, so they're depending on the US to maintain fiscal prudence and keep the dollar reasonably stable."
In Washington, White House press secretary Robert Gibbs responded to Wen's concerns by saying that the Chinese should rest assured because investments in the United States are the safest in the world.
In a visit to China in February, Secretary of State Hillary Rodham Clinton sought to assure Beijing that US assets remained a reliable investment. Beijing has not given indications of any major shift in its current investments or future buying plans, although analysts expect Chinese policymakers to gradually diversify its holdings.
About two-thirds of China's foreign reserves, accumulated from the nation's booming trade surplus, are estimated to be held in US-denominated assets. To a large degree, though, China's hands are tied, because any big withdrawals or sharp changes in purchasing could seriously disrupt global markets and hurt China's own interests.
Still, Chinese policy makers and scholars increasingly have raised concerns about putting too much of the funds in one basket, and a rickety one at that. Some have urged more investment in tangible assets such as natural resources and technology, and less of US government bonds. Their view is that these securities are susceptible to a large drop in value because of the risks of a falling dollar or rising inflation as Washington prints more money to support its spending.
"I think it can't be more natural for Premier Wen to feel worried," said Zhao Xijun, professor of finance at Beijing's Renmin University of China. "All the Chinese citizens will also share such concerns about our country's assets under the current situation of this financial crisis."
China's response to the global economic crisis was a dominant theme during the meeting of the National
China's role looms large in the global economy because it is one of a few major economies that is expected to grow in 2009.
Material from the Associated Press was included in this report. 
