China to stick with U.S. bonds- FT

Feb 12 (Reuters) - China will continue to buy U.S. Treasury bonds even though it knows the dollar will depreciate, because such investments remain its “only option” in a perilous world, the Financial Times cited a senior Chinese banking regulator as saying.

China would continue to buy Treasuries in spite of its misgivings about U.S. finances, Luo Ping, a director-general at the China Banking Regulatory Commission, told the paper after a speech in New York on Wednesday.

“Except for U.S. Treasuries, what can you hold?” Luo was cited by the paper as saying. “Gold? You don’t hold Japanese government bonds or UK bonds. U.S. Treasuries are the safe haven. For everyone, including China, it is the only option.”

Luo said Chinese officials would encourage its banks to finance domestic mergers and acquisitions rather than provide rescue finance to distressed financial companies in other countries, according to the paper.

“There will be no bottom-fishing of financial institutions, particularly in the U.S., because there is a lot of uncertainty about the quality of the books,” the paper quoted Luo as saying.

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

“To some extent Glass-Steagall has fuelled the crisis,” the paper quoted Luo as saying. “The separation of commercial and investment banking is likely to stay longer [in China] than before.”

Luo also spoke out against what he called America’s laissez-faire capitalism, the paper said.

“Deregulation in the U.S. has gone a little bit too far. The market can’t be omnipotent,” Luo said, according to the paper. (Reporting by Ajay Kamalakaran in Bangalore; editing by Stephen Nisbet)