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China Voices Concerns on U.S. Investments as G-20 Summit Begins

BY Admin  March 13, 2009 at 1:20 PM EST

China's Premier Wen Jiabao

Wen spoke at his annual news conference, where he voiced confidence in China’s own economy but asked the United States to “honor its words, stay a credible nation and ensure the safety of Chinese assets.”

“We have lent a huge amount of money to the U.S., so of course we are concerned about the safety of our assets. I do, in fact, have some worries,” Mr. Wen said, reported the Wall Street Journal.

Analysts estimate that nearly half of China’s $2 trillion in currency reserves are in U.S. Treasuries and government-affiliated notes, the Associated Press reported, and the passage of the recent $787 billion stimulus bill relies on continued investment from China.

President Obama’s administration has sold record amounts of debt this year to finance the package, resulting in a drop of Treasuries, the Washington Post reported. Merrill Lynch’s U.S. Treasury Master index shows investors lost an average of 2.9 percent in 2009.

China’s uneasiness about its high level of U.S. investment was on display last summer when its largest state-owned banks, began reducing holdings in Fannie Mae and Freddie Mac debt, the Post reported. But China has increased its overall U.S. Treasury holdings since the economic slump began– at the end of 2008 China held 46 percent more in U.S. government securities than at the end of 2007.

Wen’s comments come as finance ministers and central bankers of the G-20 gather in London this weekend to discuss the global economic free-fall and possible ways to revive growth. U.S. Treasury Secretary Timothy Geithner, Bank of England Governor Mervyn King and their counterparts will try to find some common ground on how to tackle the growing problem, but a widening split on the priorities of the meeting is threatening its success.

“The Europeans want to use this as a forum to discuss global coordination of regulation, and the Americans are more interested in global coordination of firefighting,” Randal Quarles, a former U.S. Treasury undersecretary and now a managing director at the Carlyle Group in Washington, told Bloomberg News.

In the run-up to the meeting Geithner has stressed the need for other major countries to commit to substantial efforts to boost their economies. But calls for more spending have not resonated well with many nations, and Jean-Claude Juncker, head of the eurozone finance ministers, said this week there is no need for additional spending at the moment, according to The Hill.

World Bank president Robert Zoellick said Friday stimulus bills are not enough if banking systems are not addressed.

“If you don’t take on the banking issue, the stimulus is just like a sugar high,” Zoellick said, according to the BBC. “It pushes some energy into the system but then you get the letdown unless you reopen the credit markets.”

European Union countries are also debating whether to extend a bailout to Hungary, though most agree that supporting the International Monetary Fund is a must, so that the institution can provide loans to struggling developing countries.