* China Foreign Minister says U.S. debt risks are growing
* Urges global coordination to tackle economic problems
* Calls on U.S. to protect dollar investment
* Says supports Europe and the euro
BEIJING, Aug 5 China's Foreign Minister called
on Friday for more global cooperation to resolve U.S. and euro
area debt problems as stock markets around the world tumbled on
fears another financial storm may be developing.
The minister, Yang Jiechi, said U.S. debt risks were
escalating and he called on Washington to protect dollar
investments and adopt "responsible" monetary policies.
China has a major stake in the future of the dollar.
Analysts estimate about 70 percent of its $3.2 trillion in
foreign reserves is invested in dollar assets, making it the
United States' biggest foreign creditor.
"Europe's debt problems are still developing, and the U.S.
sovereign debt default risk is escalating," Yang told the media
in Poland, where he is on an official visit.
"All countries must further increase communication and
coordination, push ahead reforms in the global financial system,
and improve governance of the global economy."
World stocks fell for the eighth straight session on Friday
on fears that Europe's debt crisis could spin out of control and
that the U.S. economy may slide into another recession.
Such a scenario could leave the weight of global economic
growth on China, although Beijing's ability to provide fresh
stimulus is limited by its need to fight inflation, which
reached a three-year high in June.
As it stands, China could account for over a third of world
economic growth this year, said Liu Ligang, an ANZ economist.
Despite the euro area's debt woes, China's foreign minister
reiterated Beijing's confidence in Europe, its top trading
partner, and the euro .
"We have bought many euro bonds in recent years and will
continue to support Europe and the euro as always in future," he
He urged Washington to "ensure the safety" of foreign dollar
"We hope the United States can enact responsible monetary
policies to maintain a trend of global economic recovery," he
said. "A stable U.S. dollar as a major global reserve currency
is very significant to global economic and financial
CHINA'S DOLLAR RISKS
Underlining Beijing's growing unease with dollar risks,
China Central Bank Governor Zhou Xiaochuan asked Washington this
week to deal responsibly with its debt, saying a choppy Treasury
market endangers the world.
Washington averted a debt default this week by agreeing to
cut fiscal spending, a deal that opened the way for an increase
in the government's borrowing limit. Still, Washington may need
to do more to stabilise its finances longer term to stave off
the risk of losing its top-notch AAA credit rating.
More Chinese are lobbying for Beijing to tackle its dollar
woes by slowing down the pace of growth in its reserves and by
investing its dollars in other asset classes, such as equity.
"We have recommended the Chinese government negotiate with
the United States to convert part of its Treasury holdings into
equity stakes in U.S. financial or energy firms," said Jing
Xuecheng, a former deputy head of research at the central bank.
Jing, who now runs his own research institute, said U.S.
equity markets are large and liquid enough to absorb any
larger-sized sales that Beijing could make in future.
Others said China should address the heart of its dollar
headache by freeing the tightly controlled yuan and let it rise.
A government economist with China's top economic planning
agency, who declined to be identified, said Beijing should allow
more Chinese investors and firms to invest abroad. That would
reduce the need for the central bank to buy so many dollars
flowing into the country and so slow growth in reserves.
Yu Yongding, a former academic member of the monetary policy
committee at China's central bank, went further and called on
Beijing to float the yuan.
"If there is any lesson China can draw from the U.S. debt
ceiling crisis, it is that it must stop policies that result in
further accumulation of foreign exchange reserves," he wrote in
an article in the Financial Times.
CHINA TO THE RESCUE?
China's growth during the global financial crisis, helped by
a massive stimulus programme, helped offset the dramatic slide
in economies elsewhere.
With fears that global growth may falter once again, many
investors are pinning their hopes on China to pick up some of
But some analysts say Beijing may not be in a position to
launch another massive fiscal stimulus to aid growth, as it did
in 2008, because it would almost certainly fuel already high
Beijing has pulled every lever at its disposal to try to
brake economic growth, yet the price pressures persist.
China's inflation likely ran at 6.3 percent in July, just a
whisker below three-year highs of 6.4 percent in June, a Reuters
poll shows. That argues for Beijing to at least keep monetary
And as far as purchasing sovereign debt is concerned,
cash-rich Beijing may not be as keen a buyer as some nations
Italian Economy Minister Giulio Tremonti said on Thursday
that Asian investors are reluctant to buy Italian bonds because
it sees they are not being bought by the European Central Bank.
Tremonti's remarks come after a source told Reuters Italian
Treasury chief, Vittorio Grilli, is in Asia as part of a regular
visit to talk to investors about buying Italian bonds.
When asked if Beijing is keen to buy Italian debt, China's
central bank declined to comment on Friday.
(Reporting by Langi Chiang and Koh Gui Qing; Editing by Ken
Wills and Neil Fullick)