US President Barack Obama’s aides scrambled on Friday to assure China that its hundreds of billions of dollars in US bonds were safe, after Premier Wen Jiabao (溫家寶) expressed concerns about “the safety” of its investments.
“There’s no safer investment in the world than in the United States,” said White House spokesman Robert Gibbs, underlining Obama’s bid to strive for “fiscal sustainability” and slash the ballooning budget deficit.
White House National Economic Council Director Lawrence Summers echoed Obama’s “commitment” that the US would “be sound stewards of the money we invest.”
China held US$727.4 billion in US Treasury bonds at the end of last year, just ahead of Japan, the holder of US$626 billion in bonds, US government data showed.
In a rare expression of concern over Beijing’s mega bond investments, Wen called on US economic planners to safeguard Chinese assets.
“We have lent huge amounts of money to the United States. Of course we are concerned about the safety of our assets,” Wen told reporters in Beijing. “To be honest, I am a little bit worried and I would like to ... call on the United States to honor its word and remain a credible nation and ensure the safety of Chinese assets.”
As the largest creditor to the US, China is “extremely interested in developments in the US economy,” he said.
Analysts say a loss of confidence in US Treasury securities could cause a dramatic drop in the dollar and force Washington to pay higher interest rates.
Scott Brown, chief economist at Raymond James & Associates, said that any Chinese effort to sharply reduce US Treasury holdings would only hurt Beijing.
“There is no incentive for the Chinese to dump their Treasuries,” Brown said.
Most of China’s foreign exchange reserves, which reached US$1.95 trillion by the end of last year, is believed to be held in the greenback.
Summers, reacting to the Chinese premier’s concern at a forum at the Brookings Institution in Washington, cited the prolonged recession in the US and said all resources available had to be utilized to stimulate economic growth.
While the US had to borrow at an “admirably high scale” now to make up for the loss of revenue caused by the recession, “it does mean that your debts can’t be rising relative to your incomes” when the economy begins to expand, he said.
Gibbs said US leaders could give “further reassurance” on foreign investments by demonstrating “their commitment to spending money wisely.”
They could also display a resolve “to stop borrowing more of it in the future by putting us on that path to fiscal sustainability through passage of the president’s budget to cut the deficit in half.”
Obama rolled out an audacious US$3.55 trillion budget proposal last month that bristles with economic reforms and spending on healthcare, climate change and education.
The budget forecasts a US$1.750 trillion deficit in this fiscal year, but foresees that figure falling to US$1.171 trillion next year.
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