China fund manager: Cut dollar assets if Fed stays loose

Section:

By Liu Li
Dow Jones Newswires
via The Wall Street Journal
Thursday, September 16, 2010

http://online.wsj.com/article/BT-CO-20100916-707347.html

BEIJING -- China should reduce dollar assets in its foreign exchange reserves if the U.S. continues to pursue a loose monetary policy that threatens to weaken the dollar, Lou Jiwei, chairman of China's sovereign wealth fund the China Investment Corporation, wrote in an article included in a book published this month.

"For China, the chief means to reduce economic risks are to strengthen regulating the capital inflow, control the liquidity through hedging, monitor relevant assets markets, and divert forex reserve to non-dollar assets," he said in the book, Post-Crisis Global Economic Balance and U.S.-China Cooperation, which was compiled for a conference involving Chinese and U.S. economists that took place this week in Beijing.

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An official with the Chinese organizer of the conference said Lou submitted the piece for inclusion in the book about three weeks ago. It isn't clear when Lou wrote it, but the article contains several references to an announcement by Washington in December that is described as having been made recently.

The publication of Lou's comments comes after China, the largest holder of U.S. debt, has slowed the pace at which it amasses U.S. Treasurys and has started buying more South Korean and Japanese government bonds, in a bid to lessen its reliance on the dollar, both for investment and trade.

Lou also said that China's monetary policy is very much restricted by U.S. monetary policy, and called for a tighter monetary policy and a looser fiscal policy by Washington. He said that that "will be beneficial to the healthy development of the global economy".

"The timing of the Federal Reserve's exit from the current extremely easy monetary policy is a key factor in determining whether China and other emerging market countries can control their asset bubble," he said.

"A relatively more stringent monetary policy would reduce the anticipation of the U.S. dollar depreciating, restrain the U.S. dollar carry-trade, reduce global liquidity and provide greater policy room for emerging market countries in their management of asset bubbles and inflation," Lou said.

A CIC spokesman couldn't immediately be reached for comment Thursday.

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