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China wary of devalued dollar
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Published: March 14, 2009
BEIJING - China's premier did not say it in so many words, but the implied advice to Washington was blunt: Do not devalue the dollar through reckless spending.
Premier Wen Jiabao's message is unlikely to be misunderstood at the White House. It is counting on Beijing to help pay for its stimulus package by buying U.S. bonds. China is already Washington's biggest foreign creditor, with an estimated $1 trillion in U.S. government debt. A weaker dollar would erode the value of those assets.
"Of course, we are concerned about the safety of our assets. To be honest, I'm a little bit worried," Wen said at a news conference yesterday after the closing of China's annual legislative session. "I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets."
The appeal suggested the outlines of Chinese President Hu Jintao's position when he meets with President Obama at a summit in London of the Group of 20 major economies April 2 on possible remedies for the world economic crisis.
Wen gave no indication whether Beijing wants changes in U.S. policy. But economists said that 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 U.S. to be careful, not to overspend and keep an eye on the dollar," said Kelvin Lau, the regional economist at Standard Chartered in Hong Kong. "There are risks that China cannot control, so they're depending on the U.S. to maintain fiscal prudence and keep the dollar reasonably stable."
In Washington, the 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.
Gibbs also said that Congress can help by passing Obama's budget for next year, which promises to halve the deficit by the end of his term.
Analysts estimate that China keeps nearly half of its $2 trillion in foreign-currency reserves in U.S. Treasuries and notes issued by other government-affiliated agencies.
"Inside China, there has been a lot of debate about whether they should continue to buy Treasuries," said Frank Gong, the chief China economist for JP Morgan.
Beijing is trying to increase its leverage at the London G-20 meeting by reminding its partners of its role in financing U.S. spending, Gong said.
"Without China's buying (Treasuries) and continuing to fund U.S. deficit spending, interest rates could have been much higher. That could be very destabilizing in this very recessionary environment," he said. "By attracting a lot of attention to this issue, China is already increasing its influence ahead of the G-20 meeting."
Finance officials from the G-20 will meet this weekend. U.S. Treasury Secretary Timothy Geithner is pressing for a new coordinated international stimulus. Japan is supportive, but European governments are reluctant to make expensive commitments before they see how current plans are working.
Wen also offered an unqualified defense yesterday of his government's policies in Tibet, ignoring questions about a major security buildup in the Himalayan region.
Tensions have spiked ahead of two key anniversaries this week -- the 50th anniversary of a failed Tibetan uprising that sent the Dalai Lama into exile and today's one-year anniversary of violent anti-Chinese riots in Lhasa that triggered the largest protests in many years.
Asked whether the security presence pointed to failings in Beijing's policies, Wen said: "The situation in Tibet is on the whole peaceful and stable."
"Tibet's continuous progress (has) proven the policies we have adopted are right," he said.
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