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SHANGHAI: China's policy on its 1.3 trillion US dollars of forex reserves is unchanged, and Washington need not worry about the prospect of a massive sell-off of US-dollar assets, economists said Monday.
The People's Bank of China, the nation's central bank, issued a statement over the weekend seeking to soothe fears that China might dump part of its US-dollar assets in a deliberate attempt to send the greenback into a tailspin.
"The dollar assets, including US government bonds, are an important component of China's foreign exchange reserve investment," the China Daily reported, citing the central bank.
The statement should "scotch rumours" that Beijing would sell off its US dollar reserves in response to pressure from Washington to revalue the Chinese currency, the yuan, the paper commented.
The renewed speculation about the fate of the world's largest forex reserves was triggered by a report last week in Britain's Daily Telegraph quoting two Chinese economists as raising the idea of a dollar asset sale.
Unusually for comments made by academics with no direct policy-making powers, the economists' statements prompted a response by US President George W. Bush, who warned that any such pressure by China would be "foolhardy."
"The intention of the statement from the central bank is fire-fighting," said Dong Tao, a Hong Kong-based economist with Credit Suisse First Boston.
"The comments (by the two economists) I believe have caused an enormous backlash in Capitol Hill," he said.
One reason why the United States has little to fear is that there are not that many other places where China can put its money.
US Treasury bonds are the investment object of choice for the managers of the huge forex reserves more or less "by default," said Tao.
"Besides US Treasury bonds, there's no single other asset where one can increase holdings by such a large quantity every month, whether it be stocks or commodities."
Another reason is that China would hurt itself immensely by causing the US dollar to plunge, since such a large portion of its reserves -- currently about 70 per cent of the total -- are tied up in the American unit.
"It is not a bargaining chip in the first place. China will not and cannot bargain in this way. Selling off dollars will only lead to a huge loss to China," said Huang Yiping, a Hong Kong-based economist with Citigroup.
Faced with a massive and growing trade deficit with China, US lawmakers are pushing for legislation to allow for sanctions against Beijing over what is seen as its manipulation of the yuan exchange rate to gain a trade advantage.
Huang said the statements from the two academics, although they worked for government-run think tanks, reflected general frustration among Chinese economists about the constant US pressure, rather than official policy.
"The Chinese are worried that too much appreciation could cause their economy to collapse, so it's no wonder that some, especially free-wheeling scholars, would think this way," he said.
"But it's an entirely different matter with policy makers." - AFP/ac
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