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China urged to diversify foreign reserves
By Chen Yongrong |
April 27, 2011, Wednesday
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Print Edition
Print Edition
SAFETY worries were raised about the assets of China, the biggest holder of United States Treasury bonds, after a key credit agency downgraded the outlook on US sovereign debt to negative.
China, which has always demanded that the US ensure the security of its dollar assets, expressed concerns after Standard & Poor's last Monday lowered the long-term US credit outlook from "stable" to "negative" and warned of risks, including spiking deficits and public debt.
Foreign Ministry spokesman Hong Lei said last Tuesday that China had "noted" S&P's move and expressed hope that the US administration could adopt "responsible policies and measures" to protect the interests of investors. The safety of the country's dollar assets has been a long-standing concern of both the Chinese government and economists, as a large amount of the nation's US$3 trillion foreign exchange reserves are US government debt.
In February of this year, China remained the largest buyer of US Treasury securities, after the country cut its holdings for four consecutive months to US$1.15 trillion, according to the latest data from the US Treasury Department.
Early last November, when the US government announced a new round of quantitative easing, or QE2, China's domestic ratings agency, Dagong Global Credit Rating Co Ltd, downgraded the sovereign credit rating of the US by one level to A+ from the previous AA, with a "negative" outlook on the US' deteriorating debt repayment capability and the drastic decline in the US government's intention of debt repayment.
Guan Jianzhong, Dagong's chairman, said he was not surprised to see S&P's downgrade on the US ratings outlook. "The US economic fundamentals are not strong, plus there is expanding fiscal deficit and declining financial revenue," he said. But he believed that the S&P move is more likely a warning to the US administration on the massive federal deficit, instead of an actual downgrade in its sovereign rating.
Currently, the S&P maintains the US' top AAA credit rating, but said there is a one-in-three chance it could cut its long-term credit rating within two years if US policy makers fail to deal with rising budget deficit and debt. Guan said that the US economy was still worsening after Dagong downgraded the country's rating last year, due to the military missions in Libya, as well as the rising defense budget and fiscal expenditures.
China's holding of dollar assets is risky, he warned. "We are closely tracking the performance of US government bonds and considering a further adjustment based on current conditions."
Moody's Investors Service Inc, another leading ratings agency, warned of the same debt risk in the United States. "Moody's rating for the US is AAA and remains stable, but an upward debt trajectory and increasing fiscal pressures increase the likelihood of an outlook change within the next two years," said Steve Hess, Senior Credit Officer with Moody's.
But Moody's was more positive over the future development of the US economy. In its latest weekly credit outlook report, the ratings agency wrote that "despite these uncertainties, we view the changed parameters of the debate with broadly similar goals as to government debt levels as a turning point that is positive for the long-term fiscal position of the US federal government."
Some Chinese economists were also optimistic on the US debt risk. Yang Tao, a researcher with the Chinese Academy of Social Sciences, said there is little chance for a US debt crisis, unless all of the bond holders sold their US Treasury bonds, which would hurt the interests of all nations.
Lu Zhengwei, chief economist with Industrial Bank Co Ltd, said that the US debt repayment capability will become better once the United States posts a better-than-expected economic recovery. Lu also called for the Chinese government to urge the US administration to take full responsibility for its debt, as well as the global economic development and financial system.
Some economists noted that China should pay close attention to the US credit conditions and diversify the investments of its foreign reserves.
(The author is a Xinhua writer.)
China, which has always demanded that the US ensure the security of its dollar assets, expressed concerns after Standard & Poor's last Monday lowered the long-term US credit outlook from "stable" to "negative" and warned of risks, including spiking deficits and public debt.
Foreign Ministry spokesman Hong Lei said last Tuesday that China had "noted" S&P's move and expressed hope that the US administration could adopt "responsible policies and measures" to protect the interests of investors. The safety of the country's dollar assets has been a long-standing concern of both the Chinese government and economists, as a large amount of the nation's US$3 trillion foreign exchange reserves are US government debt.
In February of this year, China remained the largest buyer of US Treasury securities, after the country cut its holdings for four consecutive months to US$1.15 trillion, according to the latest data from the US Treasury Department.
Early last November, when the US government announced a new round of quantitative easing, or QE2, China's domestic ratings agency, Dagong Global Credit Rating Co Ltd, downgraded the sovereign credit rating of the US by one level to A+ from the previous AA, with a "negative" outlook on the US' deteriorating debt repayment capability and the drastic decline in the US government's intention of debt repayment.
Guan Jianzhong, Dagong's chairman, said he was not surprised to see S&P's downgrade on the US ratings outlook. "The US economic fundamentals are not strong, plus there is expanding fiscal deficit and declining financial revenue," he said. But he believed that the S&P move is more likely a warning to the US administration on the massive federal deficit, instead of an actual downgrade in its sovereign rating.
Currently, the S&P maintains the US' top AAA credit rating, but said there is a one-in-three chance it could cut its long-term credit rating within two years if US policy makers fail to deal with rising budget deficit and debt. Guan said that the US economy was still worsening after Dagong downgraded the country's rating last year, due to the military missions in Libya, as well as the rising defense budget and fiscal expenditures.
China's holding of dollar assets is risky, he warned. "We are closely tracking the performance of US government bonds and considering a further adjustment based on current conditions."
Moody's Investors Service Inc, another leading ratings agency, warned of the same debt risk in the United States. "Moody's rating for the US is AAA and remains stable, but an upward debt trajectory and increasing fiscal pressures increase the likelihood of an outlook change within the next two years," said Steve Hess, Senior Credit Officer with Moody's.
But Moody's was more positive over the future development of the US economy. In its latest weekly credit outlook report, the ratings agency wrote that "despite these uncertainties, we view the changed parameters of the debate with broadly similar goals as to government debt levels as a turning point that is positive for the long-term fiscal position of the US federal government."
Some Chinese economists were also optimistic on the US debt risk. Yang Tao, a researcher with the Chinese Academy of Social Sciences, said there is little chance for a US debt crisis, unless all of the bond holders sold their US Treasury bonds, which would hurt the interests of all nations.
Lu Zhengwei, chief economist with Industrial Bank Co Ltd, said that the US debt repayment capability will become better once the United States posts a better-than-expected economic recovery. Lu also called for the Chinese government to urge the US administration to take full responsibility for its debt, as well as the global economic development and financial system.
Some economists noted that China should pay close attention to the US credit conditions and diversify the investments of its foreign reserves.
(The author is a Xinhua writer.)
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