Chinese premier expresses concern over American investments

China's premier didn't say it in so many words, but the implied warning to Washington was blunt: Don't devalue the dollar through reckless spending.

Premier Wen Jiabao's message is unlikely to be misunderstood at the White House. It is counting on Beijing to help pay for its stimulus package by buying US bonds. China already is Washington's biggest foreign creditor, with an estimated $1.3 trillion in US government debt. A weaker dollar would erode the value of those assets.

Wrapping up the annual session of China's Parliament, Wen took a swipe at the US, which has depended largely on Chinese investment in Treasury bonds to fund its large budget deficit. Over the past few years, China has built up the world's largest foreign reserves, totaling $1.95 trillion, with some two-thirds of that held in US assets, mainly Treasuries.

As the global economy has weakened, the value of China's investments has decreased. "We have lent a huge amount of money to the United States," Wen said at a press conference in Beijing's Great Hall of the People. "I am a little bit worried. I request the US to maintain its good credit, to honor its promises, and to guarantee the safety of China's assets."

Wen gave no indication whether Beijing wants changes in US policy. But economists said his comments reflect fears that higher US budget deficits from Washington's $787 billion stimulus package could drive down the dollar and the value of China's Treasury notes. His comments assume special significance ahead of the G-20 summit in London on 20 April.

"Without China's buying (Treasuries) and continuing to fund US deficit spending, interest rates could have been much higher. That could be very destabilizing in this very recessionary environment," he said. "By attracting a lot of attention to this issue, China is already increasing its influence ahead of the G-20 meeting," said Frank Gong, chief China economist for JP Morgan.

China's leaders are also speaking out against what they see as "surging" protectionism, as Wen described it during the 5 March opening of the National People's Congress. Over the past several months several of China's state-controlled newspapers have editorialized against "buy American" rules in the US stimulus plan. "If a country only buys products that it produces itself, and forbids the import of other countries' products without reason, this suggests a move to trade protectionism," Chinese Commerce Minister Chen Deming said.