Could China Control U.S. With Investments?

BEIJING (AP) -- China tried Wednesday to allay concern about the political impact of its $2.5 trillion foreign reserves, saying they are not a "nuclear weapon" to control other nations and its vast holdings of U.S. Treasury debt "should not be politicized."

In the second in a series of statements this week on its handling of the reserves, the foreign exchange agency said its investments are judged on economic grounds. It expressed hope they would be beneficial for China and the countries where it invests.

The statement appeared to be an attempt to defuse concerns in the United States and elsewhere over whether Beijing might threaten to sell off Treasurys or other holdings to punish them in political disputes. China is Washington's biggest foreign creditor, with just over $900 billion invested in Treasurys.

In a question-and-answer format, the statement asked, "Are China's foreign reserves a 'secret weapon' or a 'nuclear weapon'?" The reply said China is a responsible long-term investor and "doesn't seek the power to control recipients of its investment."

The statement said the U.S. bond market is an important part of China's reserves. It said Beijing will adjust its holdings according to market performance and said they "should not be politicized."

Echoing earlier appeals by Chinese leaders, it called on Washington and other governments to follow prudent economic policies to protect the value of Beijing's investments.

The statement also ruled out a shift to increasing China's holdings of gold, saying prices fluctuate too much and the global supply is too small.

In an earlier statement, the foreign exchange manager said Tuesday it made a "relatively good profit" in 2008 and 2009 despite the global crisis. It expressed confidence it will make "long-term stable and good results" in the future.

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