China to stick with US bonds (FT)

by Chris Sturr | February 12, 2009

From yesterday’s Financial Times; hat-tip to Larry P. for this. The money quote is from Luo Ping, director-general of the China Banking Regulatory Commission: “We hate you guys” (said of the United States, or its financial system and government, at least). Treasuries—can’t live with ‘em, can’t live without ‘em.

We cover this and related issues about the risk of capital flight (why it started to happen, but reversed when the financial crisis went global) in Marie Duggan’s cover article in the current issue, “The Specter of Capital Flight: How Long Will the Power of the U.S. Dollar Protect the United States?” It’s available only in the print edition, but you can order that issue here, or subscribe.

By Henny Sender in New York | February 11 2009 23:33

China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its “only option” in a perilous world, a senior Chinese banking regulator said on Wednesday.

China has used the dollars it accumulates selling manufactured goods to US consumers to accumulate the world’s largest holding of Treasuries.

However, the increasing US budget deficit and its potential impact on the dollar have raised questions about the future Chinese appetite for US debt.

Luo Ping, a director-general at the China Banking Regulatory Commission, said after a speech in New York on Wednesday that China would continue to buy Treasuries in spite of its misgivings about US finances.

“Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”

Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”

Read the rest of the article.

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