China holds U.S. government bonds

China has pledged to continue U.S. government bonds to buy. Treasuries remained an “important part” of the reserves of the country, said Vice Governor of China’s central bank, Hu Xiaolian, on Monday in Beijing.

Shortly before a meeting of state chief Hu Jintao and U.S. President Barack Obama Beijing thus ended an unusual diplomatic blows. China’s Premier Wen Jiabao had recently unusually clearly said that he worried about the huge investment in his country in U.S. government bonds. The American government hastened then, the security of the papers should be emphasized.

The exchange underscores how sensitive the relationship between the two countries still is. Jintao and Obama are on the fringes of the summit of the 20 major industrial and emerging economies in the world (G20) next week in London.

The U.S. government is to rely on China by buying Treasuries programs to revitalize the economy and for the rescue of the banks financing. With the recently adopted economic package is almost $ 800 billion hard. For 2009, the financing needs of U.S. $ 2500 billion at estimated.

In January, foreign investors were net short-and long-term U.S. bonds and equities in the record volume of $ 148.9 billion sold. The course of U.S. government bonds rose after Hu’s announcement, yields fell slightly.

China holds the world’s largest stock of U.S. government bonds. On this investment, the country has suffered losses – which might even expand, if the fight against the crisis, the inflation rise and the dollar devalues. Therefore in China, according to claims become less in Treasuries to invest. However, there is hardly an alternative. “U.S. government bonds are the safe harbor. This is for everyone is the only option, even for China,” had Luo Ping, Director General of the Chinese Banking Supervision, recently acknowledged.

Hu said, China was willing to increase the financial resources of the International Monetary Fund (IMF) – is also through the purchase of bonds. Through the issuance of bonds, the IMF could quickly absorb large amounts, Hu said: “If the IMF decides, Bonds to place, China will purchase these securities actively examined.”

The Fund is now more money available to states to help kriselnde. Even on this issue is on the G20 summit next week to advise. So far the amount of the credit reserve to $ 250 billion. It should be doubled. The United States has tripled to 750 billion dollars proposed.