Keep buying US treasuries: Clinton to China

US Secretary of State Hillary Clinton urged China to continue buying Treasury bonds to help finance President Barack Obama’s stimulus plan.

The two nations’ economies are intertwined and it would not be in China’s interest if the US were unable to sell its government debt, Clinton said in an interview with Shanghai’s Dragon Television on Sunday. China knows it needs a healthy American economy as its biggest export market, she said, adding that the US must take “drastic measures” to stimulate growth.

“We are truly going to rise or fall together,” Clinton said. “By continuing to support American treasury instruments, the Chinese are recognising” that interconnection.

China, the largest holder of US government debt, boosted purchases by 46 per cent last year to a record $696.2 billion, as the global recession spurred demand for the securities. The Chinese government said last week it planned to keep buying Treasuries, adding that future purchases would depend on the preservation of their value and the safety of the investment.

China continued to buy the US debt amid a 27 per cent increase in its holdings of foreign currencies in 2008. JPMorgan Chase & Co predicted in a February-6 report that China would keep buying Treasuries — not only for the near-term stability of the global financial system, but also because there was no viable and liquid alternative market in which to invest China’s massive and still growing reserves.

Chinese attempts to diversify from Treasuries into more risk-oriented assets have not fared well. It has lost at least half of the $10.5 billion it invested in New York-based Blackstone, Morgan Stanley and TPG Inc since mid-2007.

China’s currency reserves of $1.95 trillion are about 29 per cent of the world total.