China Debates Forex Reserves; Boosts Strategic Petroleum Reserves

A string of recent pronouncements from Beijing leaders capped off with a strong statement by Premier Wen Jiabao over his concerns for the value of China's $681.9 billion investment in U.S. Treasury bonds has highlighted a troubled Chinese leadership's outlook for 2009. Premier Wen's statement was received by analysts as a strong warning to Washington. It follows a revision in the $588 billion Chinese fiscal stimulus package (see Willy Lam's article in this issue) at the recently concluded National People's Congress (China's parliament) and the release of a joint communiqué at the close of the G-20 finance minister meeting by Brazil, India, Russia and China (BRIC). The timing of these pronouncements outlines the silhouette of China's nascent comprehensive economic strategy at home and abroad. Moreover, it is an outlay of the on-going heated debate within China over its roadmap for economic recovery and a test of Sino-U.S. relations, given China's massive $2 trillion foreign exchange reserves (China Daily, December 17, 2008).

During the "meet-the-press" session after the close of the NPC on March 12, Premier Wen said, "We [China] lent such huge fund to the United States and of course we're concerned about the security of our assets and, to speak truthfully, I am a little bit worried." In an unusually direct appeal, Wen added, "I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China's assets" (Xinhua News Agency, March 13). On the issue of China's foreign reserves, Wen asserted that Beijing's primary concern will be to preserve its national interest, but he also acknowledged that, "we [China] also have to consider the stability of the overall international financial system, as the two factors are interlinked." Wen's statement linking China's national interests to stability in the international financial system were meant to allay concerns over the possible destabilizing impact of China's rise in the international system. The statement also reflects the oft-stated official position that China is a responsible stakeholder, and to brush aside any lingering expectation that China will take a leadership role in reshaping the post-Bretton Woods system.