Video: China worried about U.S. holdings

updated 3/23/2009 5:31:05 AM ET 2009-03-23T09:31:05

China will continue buying U.S. government debt while paying close attention to possible fluctuations in the value of those assets, a vice governor of Beijing's central bank said Monday.

Investing in U.S. Treasury bills is "an important component part of China's foreign currency reserve investments," People's Bank of China Vice Governor Hu Xiaolian said at a news conference on Monday.

"So as an important component we are naturally relatively concerned with the safety and profitability of U.S. government bonds," Hu said -- a statement apparently aimed at concerns that rising debt to fund Washington's stimulus package could spur inflation and weaken the dollar.

Biggest foreign creditor
China is Washington's biggest foreign creditor, holding an estimated $1 trillion in U.S. government debt. A weaker dollar would erode the value of those assets.

Hu's comments follow remarks earlier this month from Chinese Premier Wen Jiabao that he was "a little bit worried" about China's holdings of U.S. government debt. Wen called on the U.S. to honor its commitments, remain credit-worthy, and ensure the safety of Chinese assets.

China's investments are likely to be a major topic of discussion when Chinese President Hu Jintao meets with President Barack Obama on the sidelines of an April 2 summit in London of the Group of 20 major economies called to discuss remedies for the global financial crisis.

China has given no indication of any preferred changes to U.S. policy, and Vice Governor Hu -- who is not related to the president -- said China considered U.S. debt a good credit risk, even if market values fluctuate.

Analysts estimate China keeps nearly half of its $2 trillion in foreign currency reserves in U.S. Treasuries and notes issued by other government-affiliated agencies. That has sparked questions within China as to whether the government should continue to buy Treasuries, as well as debate on how Beijing might leverage that to boost its influence over the global financial system.

China's continued purchase of Treasuries helps fund U.S. deficit spending aimed at averting a lengthy recession and helps keeps interest rates low to permit U.S. banks to continue lending.

More on: China

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