Thursday, February 11, 2010

China Limits Investmnents in U.S.

by Ambrose Evans-Pritchard

China has ordered managers of its vast currency reserves to withdraw from risky dollar assets and retreat to core debt guaranteed by the US government, a clear sign that Beijing is battening down the hatches for fresh trouble on global markets.

A Communist Party directive leaked to the Chinese-language edition of the Asia Times said dollar reserves should be limited to US Treasuries or agency mortgage debt such as Freddie Mac that enjoys Washington's implicit backing.

BNP Paribas said the move has major implications for global risk assets. "The message from Beijing is that we don't like this environment," said Hans Redeker, the bank's currency chief.

The directive covers both the State Administration of Foreign Exchange (SAFE) and China's state-controlled commercial banks. Together they have an estimated $3 trillion (£1.9 trillion) of foreign holdings.

The exact break-down of China's holdings are a state secret but it is understood that SAFE bought large amounts of corporate debt as well as municipal and state bonds during the boom years of 2006 and 2007. Any move to liquidate holding of California debt at this crucial juncture could have serious implications

Read the rest here.

1 comment:

  1. Interesting, the article states China's investment guru used to head derivatives trading at PIMCO.

    China said they wouldn't back their derivatives commitments months ago. I'm not aware of any repercussions for that move.

    They did a big wind farm deal in Texas. I wonder if that is impacted in any way by this move.