Premier: US needs to keep deficit at appropriate level

Chinese Premier Wen Jiabao said that China hopes that the United States government will keep its federal deficit at an appropriate level to ensure basic stability in the U.S. dollar exchange rate.

"We have seen some signs of recovery in the U.S. economy ... I hope that as the largest economy in the world and an issuing country of a major reserve currency, the United States will effectively discharge its responsibilities," Wen told a news conference in Egypt where the Forum on Africa-China Cooperation is being held.

"Most importantly, we hope the United States will keep an appropriate size to its deficit so that there will be basic stability in the exchange rate, and that is conducive to stability and the recovery of the global economy," Wen said.
The Chinese premier had expressed concern in March that massive U.S. deficit spending and near-zero interest rates could erode the value of China's huge U.S. Treasury bond holdings.

China is the biggest holder of U.S. government debt and has invested an estimated 70 percent of its more than $2 trillion foreign exchange reserves in dollar assets.

"I follow very closely Chinese holdings of U.S. assets because that constitutes a very important part of our national wealth. Our consistent principle when it comes to foreign exchange reserves is to ensure the safety, liquidity and good value of the reserves," Wen said.

People's Daily Online