China should invest in assets, not US govt debt: PBOC adviser

Beijing

CHINA should make better use of the country's funds by looking to invest its large capital reserves in real assets, not United States Treasury bonds, an adviser to China's central bank said on Monday.

"We are a low income country, but we are a high wealth country ... we should make better use of the capital. Rather than investing in US government debt, it's better to invest in some real assets," said Fan Gang, director of the National Economic Research Institute and a member of the People's Bank of China's (PBOC) monetary policy committee.

Mr Fan, speaking at the Boao Forum for Asia in southern Hainan province, also said that China's debt load was a serious problem but that it would not lead to a financial crisis for the country as the debt was mostly domestic and China had ample savings.

He said that the debt overhang was a result of previous overheating of the economy."This problem is serious and we need to clean house. We need to contain this financial risk, but it will not cause a financial crisis."

China's rising debt burden has raised concerns that it could eventually trigger a financial crisis, with government officials acknowledging the challenge but vowing to contain the risks.

Mr Fan said China's savings rate is 44 per cent of GDP, giving it enough of a cushion to deal with the risks, though he added that it would take time for China to stabilise the leverage ratio. In an interview with Chinese financial magazine Yicai on Sunday, Mr Fan addressed China's rising trade tensions with the US, saying the US feels pressure from China's rise. Mr Fan said the US will take measures, which could include a trade war or blocking Chinese investment in the country, to contain China's rapid development.

China held around US$1.17 trillion of Treasuries as at end-January, making it the largest of America's foreign creditors and the No. 2 overall owner of US government bonds after the Federal Reserve.

A Chinese vice-finance minister said last week that China is a responsible investor of its foreign exchange reserves and that it follows market rules in investing its reserves.

China's foreign exchange reserves, the world's largest, rose slightly in March to US$3.143 trillion, central bank data showed on Sunday. REUTERS