China expresses worry over its U.S. assets
BEIJING (Reuters) - Premier Wen Jiabao held out the prospect of extra stimulus spending if needed to hit China's 8 percent growth goal this year and called on Washington to ease worries Beijing has about the safety of its vast U.S. assets.
In his annual news conference ending the nine-day session of China's ceremonial parliament, Wen on Friday reaffirmed China's commitment to keeping the yuan broadly steady and noted that the currency, far from having depreciated, had been rising in value.
Wen, who fielded questions for well over two hours, said the 8 percent growth target was a measure of his government's confidence and a reflection of its commitment to keep raising living standards. But he said the task was not easy.
"I believe that there is indeed some difficulty in reaching this goal. But with effort it is possible," Wen said.
"Only when we have confidence can we have courage and strength, and only when we have courage and strength can we overcome difficulties," the avuncular Wen, 67, said.
The premier said Beijing expected to see results from President Barack Obama's economic recovery plan but expressed concern that massive U.S. deficit spending and near-zero interest rates would erode the value of China's huge U.S. bond holdings.
China is the biggest holder of U.S. government debt and has invested an estimated 70 percent of its $2 trillion stockpile of foreign exchange reserves, the world's largest, in dollar assets.
"We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets. To speak truthfully, I do indeed have some worries.
"I would like, through you, to once again request America to maintain their creditworthiness, keep their promise and guarantee the safety of Chinese assets," Wen said.
U.S. Secretary of State Hillary Clinton voiced her appreciation during a visit to Beijing last month of China's continuing "well-grounded confidence" in U.S. Treasuries.
Any big switch by Beijing out of U.S. Treasury bonds would drive prices lower, inflicting the very losses Wen fears. Still, his remarks, along with the lure of surging share prices, helped depress U.S. Treasuries in Asia.
China's central bank weighed in later with criticism of America's "inappropriate" economic policies, including low savings and high consumption, and said the global crisis had its roots in what it called an unchecked issuance of dollars.
KEEPING SOME POWDER DRY
Wen was speaking at the end of a week in which China has reported a record decline in exports in February and record-low industrial production growth in the first two months of the year.
The weakness was partly offset by a surge in bank lending and strength in fixed-asset investment in response to the 4 trillion yuan ($585 billion) stimulus package that the government unveiled on November 9 in a bid to secure 8 percent growth this year.
Wen disappointed investors a week ago, in his annual report to parliament, by failing to announce an increase in the size of the package, which aims to boost domestic demand and so take up the slack left by a free-fall in exports.
But he said markets had failed to grasp that the government was already providing relief over and above the stimulus: taxes would be cut by at least 500 billion yuan this year, pensions were going up and teachers' salaries would rise.
What's more, the government had kept some powder dry in case the global economic crisis, already the deepest since the 1930s, got even worse.
"We have prepared enough ammunition and we can launch new economic stimulus policies at any time," he said.
A tightly managed budget and years of rising tax revenues powered by strong economic growth meant the government could now afford to borrow to support the economy.
"We now have more leeway to run a larger fiscal deficit and take on more debt," Wen said. "The most direct, powerful and effective way to deal with the current financial crisis is to increase fiscal spending -- the quicker the better."
STEADY AS SHE GOES
Some officials and economists believe China should also try to quicken its economic recovery by pushing down the yuan, also known as the renminbi, to make the country's exports more competitive on global markets.
Switzerland's central bank on Thursday fanned speculation that a global round of competitive devaluations could be at hand by intervening to weaken the Swiss franc to help fight deflation.
Asked whether China would let its currency depreciate, Wen said this did not accord with the facts: because European and Asian currencies had fallen hard in the past year, the yuan had been gaining in value, putting pressure on China's exports.
Wen restated China's long-standing determination to keep the yuan basically steady and said Beijing alone would set the course of the currency. "No other country can put pressure on our country to depreciate or appreciate the renminbi."
Attaining 8 percent growth is the absolute priority of China's ruling Communist Party, which has staked its claim to legitimacy on ensuring ever-rising living standards and fears social unrest if growth slips below that threshold.
Twenty million migrant workers have already lost their jobs due to a collapse in exports and a slump in construction.
"The problem of unemployment is a very serious one," Wen said. The country was still stable, but he added: "Our government will take this a hundred times more seriously and never become complacent."