China central bank in talks to shore up capital-NYT

WASHINGTON, Sept 5 (Reuters) - China's central bank has begun discussions with the country's finance ministry to discuss ways to shore up the bank's capital as its investments in U.S. Treasury and mortgage debt decline in value, the New York Times reported on Friday.

The Times, citing three unnamed people familiar with the talks, said the People's Bank of China's tiny capital base of $3.2 billion has not grown during a seven-year buying binge of roughly $1 trillion in Treasury debt and mortgage-backed bonds issued by Fannie Mae (FNM.N) and Freddie Mac (FRE.N).

The newspaper said that most likely the finance ministry would simply transfer bonds of other Chinese government agencies to the bank to increase its capital.

An injection of capital into the PBOC from the finance ministry could reduce the independence of the central bank and could make it more beholden to that ministry, which has tended to oppose a stronger yuan currency CNY=, the Times said.

China's central bank has been one of the main advocates of a steady strengthening of the yuan over the past three years, the Times said. But the yuan's rise, combined with low returns on U.S. assets, has resulted in a real annual loss of about 10 percent on the PBOC's dollar investments, the report said.

While the actual value declines of the central bank's investments are a carefully guarded state secret, the Times quoted Victor Shih, an expert in Chinese central banking at Northwestern University in Chicago, as saying that many officials at the PBOC are growing resentful of the institution's losses. (Reporting by David Lawder; Editing by James Dalgleish)