Following a report in the Financial Times, Luo Ping, a senior official at the China Banking Regulatory Commission, issued a clarification pointing out that buying US bonds is not the only option available to China for investing its foreign exchange reserves.
In an earlier Financial Times report on February 12, Luo Ping was quoted as saying: "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."
Luo clarified the report later the same day, pointing out that buying US treasuries is in fact one of the options available to China, which can also purchase gold and securities issued by other countries and regions to protect the value of its foreign investments.
"If the U.S. issues too many bonds to prop up its ailing economy, the holders will suffer substantial losses," he said.
In September 2008, China surpassed Japan as the largest overseas holder of Treasuries. But as China's foreign exchange reserves grow at a slower pace in the midst of falling exports, it is expected that there will be a declining Chinese appetite for US bonds and dollar-based assets.
In fact, China's own needs, and the country's target of securing the value of its foreign reserves, will be the determining factors in the decision to buy any future bond issues, and the numbers bought.
(China.org.cn by He Shan, February 13, 2009)
