China urged to diversify foreign reserves
0 
SAFETY worries were raised about the assets of China, the biggest holder of United States Treasury bonds, after a key credit agency downgraded the outlook on US sovereign debt to negative.
China, which has always demanded that the US ensure the security of its dollar assets, expressed concerns after Standard & Poor's last Monday lowered the long-term US credit outlook from "stable" to "negative" and warned of risks, including spiking deficits and public debt.
Foreign Ministry spokesman Hong Lei said last Tuesday that China had "noted" S&P's move and expressed hope that the US administration could adopt "responsible policies and measures" to protect the interests of investors. The safety of the country's dollar assets has been a long-standing concern of both the Chinese government and economists, as a large amount of the nation's US$3 trillion foreign exchange reserves are US government debt.
In February of this year, China remained the largest buyer of US Treasury securities, after the country cut its holdings for four consecutive months to US$1.15 trillion, according to the latest data from the US Treasury Department.
Early last November, when the US government announced a new round of quantitative easing, or QE2, China's domestic ratings agency, Dagong Global Credit Rating Co Ltd, downgraded the sovereign credit rating of the US by one level to A+ from the previous AA, with a "negative" outlook on the US' deteriorating debt repayment capability and the drastic decline in the US government's intention of debt repayment.
Guan Jianzhong, Dagong's chairman, said he was not surprised to see S&P's downgrade on the US ratings outlook. "The US economic fundamentals are not strong, plus there is expanding fiscal deficit and declining financial revenue," he said. But he believed that the S&P move is more likely a warning to the US administration on the massive federal deficit, instead of an actual downgrade in its sovereign rating.
