Reply #42: China's Diversification Won't Hurt Dollar, Wen Says

[54anickel]

http://www.bloomberg.com/apps/news?pid=20601089&sid=a6BgUbt6_Oo8&refer=china

March 16 (Bloomberg) -- China, the second-largest overseas holder of Treasuries, said diversification of its $1.07 trillion currency reserves won't cause a slump in U.S. securities.

``Our purchases of U.S. dollar assets are mutually beneficial,'' Prime Minister Wen Jiabao said at a press conference after the annual meeting of China's legislature in Beijing. The establishment of a new agency to help manage the reserves ``won't affect the value of the U.S. dollar assets.''

China, which lifted Treasury holdings by $4 billion to $353.6 billion in January, plans to set up an agency to seek higher returns on its reserves and invest in companies in a similar way to Singapore's Temasek Holdings Pte. The dollar slumped 1 percent against the euro in the week ended Nov. 11 after central bank Governor Zhou Xiaochuan said he plans to diversify the world's biggest currency reserves.

``U.S. Treasuries are the safest and most secure investments globally,'' said Arjuna Mahendran, chief strategist for Asia-Pacific at Credit Suisse in Singapore. ``We're looking at very small amount of money going into the equity markets until they build up the expertise to manage these holdings.''

Wen said China lacks experience in investing overseas and aims to increase the ``safety'' of its holdings when diversifying, suggesting the process will be gradual. The central bank's Zhou said last week that China will support efforts by domestic organizations to invest abroad, adding it'll be a slow process.

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