China said sticking with U.S. bonds despite depreciation

9:07p ET Wednesday, February 11, 2009

Dear Friend of GATA and Gold:

A Chinese government banking official was quoted by the Financial Times today, in the story appended here, as saying that his country has no alternative to continuing its purchases of U.S. Treasury bonds even as China knows that those bonds will only depreciate.

But the official also mentioned gold without dismissing it as he dismissed the bonds of other countries.

In any case it is hard to believe that the leaders of the country that is doing most of the grunt work in the world and earning what should be the world's greatest store of wealth really think that they can only watch the fruit of their labor go down the drain. And of course no one in China's position would be likely to comment any differently than this banking official until the country's reserves were sufficiently hedged.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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China to Stick with U.S. Bonds

By Henny Sender
Financial Times, London
Wednesday, February 11, 2009

http://www.ft.com/cms/s/0/ba857be6-f88f-11dd-aae8-000077b07658.html?ncli...

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."

However, Mr Luo said Chinese officials would encourage their banks to finance domestic mergers and acquisitions rather than provide rescue finance to distressed financial companies in other countries: "There will be no bottom-fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books."

Mr Luo said China intends to maintain its separation of investment and commercial banking based on its observations of the US after repeal of the Glass-Steagall Act that enforced a similar division of banking activities.

"To some extent, Glass-Steagall has fuelled the crisis," Mr Luo said. "The separation of commercial and investment banking is likely to stay longer [in China] than before." Like senior financial officials in other developing nations -- such as Mohammad Al Jasser, vice-governor of the Saudi Arabian Monetary Agency -- Mr Luo also spoke out against what he called America's laissez-faire capitalism.

"Government ownership was viewed as something negative but the pendulum is swinging the other way. Perhaps banking is [no different from] public utilities where government participation is necessary," he said.

"Deregulation in the US has gone a little bit too far. The market can't be omnipotent."

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