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发帖数: 27535 | 1 NEW YORK (Reuters) – Confidential diplomatic cables from the U.S. embassies
in Beijing and Hong Kong lay bare China's growing influence as America's
largest creditor.
As the U.S. Federal Reserve grappled with the aftershocks of financial
crisis, the Chinese, like many others, suffered huge losses from their
investments in American financial firms -- from Lehman Brothers to the
Primary Reserve Fund, the money market fund that broke the buck.
The cables, obtained by WikiLeaks, show that escalating Chinese pressure
prompted a procession of soothing visits from the U.S.Treasury Department.
In one striking instance, a top Chinese money manager directly asked U.S.
Treasury Secretary Timothy Geithner for a favor.
In June, 2009, the head of China's powerful sovereign wealth fund met with
Geithner and requested that he lean on regulators at the U.S. Federal
Reserve to speed up the approval of its $1.2 billion investment in Morgan
Stanley, according to the cables, which were provided to Reuters by a third
party.
Although the cables do not mention if Geithner took any action, China's deal
to buy Morgan Stanley shares was announced the very next day.
The two Treasury officials to whom the cables were addressed, Deputy
Assistant Secretary for Asia Robert Dohner and Deputy Assistant Secretary
for International Monetary and Financial Policy Mark Sobel, declined through
a spokesperson to comment for this story. The State Department also
declined to comment.
China is America's biggest foreign lender, playing a crucial role in the U.S
.Treasury auctions that allow Washington to borrow what it needs to keep its
government running. At the same time, the United States is China's top
export destination: America's trade deficit with the nation reached a record
$273.1 billion in 2010. Most economists describe the two economies as co-
dependent.
The concern in certain influential Washington and Wall Street circles is
that Beijing would leverage its position as the main enabler of U.S.
overspending. And the cables provide a glimpse into how much politics inform
relations between the world's two largest economies.
One cable cites Chinese money managers expressing concern that U.S. arms
sales to Taiwan -- a major, longstanding irritant in the relationship --
could sour the Chinese public on Treasury purchases.
The subject of Taiwan came up during an October 9, 2008 meeting the U.S.
financial attache's office had with Liu Jiahua, Deputy Director General of
China's foreign currency reserve manager, the secretive behemoth known as
the State Administration for Foreign Exchange, or SAFE.
"Liu observed that the recent U.S. announcement of another arms sale to
Taiwan made it more difficult for the Chinese government to explain its
policies supportive of the U.S. to the Chinese public," reads an account of
his comments in one of the cables.
The cables also indicate a high level of confidence among the Americans that
China can't entirely stop buying U.S. debt, a sentiment shared by most
economists who describe the dynamic as a form of mutually assured financial
destruction.
But the cables do show that China can and will pull back, with financial
repercussions. In the spring of 2009, with U.S.-China financial tensions
running especially high, China's Treasury holdings fell to around $764
billion, down from nearly $900 billion. In July, after tensions between the
two nations mostly subsided, its holdings rose to a record $940 billion.
During the financial turmoil, the cables show that Beijing also shifted its
portfolio away from longer-term Treasury notes, which helped drive up
America's long-term borrowing costs.
NOT TOO BIG TO FAIL
The collapse of Lehman had a swift and powerful impact on SAFE. "Several
interlocutors have told us that Lehman was a counterparty to SAFE in
financial transactions and as a result SAFE suffered large losses when
Lehman collapsed," Deputy Chief of Mission at the U.S. Embassy in Beijing
Dan Piccuta wrote in a cable to Washington on March 20, 2009.
The hit to its balance sheet is likely what prompted a Chinese official to
tell a U.S. diplomat months earlier that SAFE was afraid to re-enter the U.S
. repo market -- that is, it was reluctant to resume lending its short-term
Treasuries to counterparties wanting to use them as collateral in cash loans.
On October 9, 2008, officials from the U.S. embassy's office of the
financial attache in Beijing met with SAFE Deputy Director General Liu
Jiahua. "SAFE is very concerned over the danger involved in lending U.S.
Treasuries to U.S. financial institutions in the repurchase agreement market
," Liu said.
Liu said SAFE's confidence in U.S. banks had been shaken. SAFE had exited
the repo market, which is a way for corporations and financial institutions
to borrow overnight.
The cable continues, "Liu remained noncommittal on the possible resumption
of lending, but agreed that SAFE had sufficient confidence in those
institutions and would consider a system whereby the Federal Reserve or
other U.S. government agency would act as a guarantor."
Public opinion clearly rattled China's financial leaders. One cable shows
Liu citing an internet discussion forum, saying "the Chinese leadership must
pay close attention to public opinion in forming policies."
The U.S. government does not appear to have offered the Chinese a special
setup guaranteeing U.S. banks. Instead, the cables show, American diplomats
reassured the Chinese by pointing out that Washington had infused banks'
balance sheets with $700 billion in fresh capital, effectively propping up
the banking system.
FANNIE AND FREDDIE, GUARANTEED OR NOT
China holds hundreds of billions of dollars in debt issued by Fannie Mae and
Freddie Mac, the housing agencies known as Government Sponsored Entities,
or GSEs.
Like many other investors, it purchased agency debt before the crisis with
the expectation that Fannie and Freddie were implicitly backed by the U.S.
government.
In September 2008, when the Treasury Department took control of the two GSEs
, SAFE officials grew alarmed, the cables show. Suggestions that senior GSE
debt holders would have to take a haircut sparked a public outcry in China.
The media warned that the government's currency manager faced monstrous
losses similar to those suffered earlier by the nation's sovereign wealth
fund, China Investment Corp., after its investments in U.S. financial
institutions blew up.
Media outlets had already heavily criticized the government for CIC's losses
-- a Financial Times story circulated by outlets such as China Daily
speculated that CIC had lost $80 billion of the government's foreign
reserves. In late 2008 Chinese newspapers routinely ran headlines with the
words "Fannie Mae" and "Freddie Mac" spelled out in English.
To defuse the situation, the Treasury Department sent Undersecretary for
International Affairs David McCormick to Beijing for two days in October
2008. The gesture went over well.
"All of Undersecretary McCormick's counterparts appeared to appreciate his
willingness to come to Beijing in the midst of a financial crisis," Piccuta
wrote in a cable dated October 29, 2008. "Interlocutors stressed that unless
leaders' concerns about the viability of banks and U.S. government-
sponsored enterprises (GSEs) are assuaged, lower-level officials will be
constrained from taking on greater counter-party risks."
The cables show McCormick trying to reassure the Chinese. "In each meeting,
Undersecretary McCormick emphasized that even though the U.S. government did
not explicitly guarantee GSE debt, it effectively did so by committing to
inject up to $100 billion of equity in each institution to avoid insolvency
and that this contractual commitment would remain for the life of these
institutions," Piccuta wrote.
PACIFIC RIFT
The U.S. Federal Reserve announced a program to buy agency mortgage-backed
securities and Treasuries in early 2009 to help flood the financial system
with liquidity and stop Treasury yields from rising. But at first the
purchases had very little impact on yields, which climbed steadily while the
Treasury Department's auctions of new debt wobbled.
In China, top officials began publicly criticizing the inflationary side-
effects of the Fed's program. They said the expansion of the Fed's balance
sheet would devalue their Treasury holdings -- and indeed, the Chinese
public watched as Treasury yields rose and the older debt the Chinese had
sank in value.
On March 13, 2009, Chinese Premier Wen Jiabao said at a press conference he
was "concerned" about the security of China's investments in U.S. Treasuries
. The March 20 cable, titled "Premier Wen's comments on U.S. Treasuries:
Protect China's investments," documents a score of Chinese officials
discussing their worries about U.S. Treasuries and the potential
consequences of their uncertainty.
One economist at Caijing Magazine, which diplomats described as a "respected
" Chinese outlet, told U.S. officials in late February "there has been a '
huge debate' within the government about China's holdings of U.S. Treasuries
."
According to the cable, the Chinese economist told U.S. embassy officials
that "SAFE has been shifting its portfolio toward shorter-term assets to
reduce the risk of capital losses from higher inflation."
That information dovetailed with data, released many months later, showing
the Chinese had indeed sold longer-dated Treasuries and bought more T-bills,
which surged to $210 billion by May 2009. The move likely contributed to
the rise in long-term yields.
GEITHNER IN BEIJING
Tensions remained high during Geithner's visit to China -- his first as
Treasury Secretary -- on June 1 and 2, 2009.
Geithner, who has lived in China and other parts of Asia and holds a master'
s in East Asian studies, met with top Chinese officials, including the head
of CIC, China's $200 billion sovereign wealth fund, and the ministers of
finance and commerce.
The trip had been scheduled for months with a predictable agenda, but the
meetings were full of spontaneous discussion and frank complaints from the
Chinese, the cables reveal.
Xie Xuren, China's minister of finance, met with Geithner on June 1 and "
expressed concern about the potential for inflation and the long-term
sustainability of U.S. budget deficits," according to a cable detailing
Geithner's visit, dated June 17, 2009.
The next day, June 2, CIC Chairman Lou Jiwei confided in Geithner that his
fund had halted all new investments in 2008 after the financial crisis broke
out, but had since scoped out a new stake in Morgan Stanley, the U.S.
investment bank.
At the time of Geithner's visit, Morgan Stanley was planning a new share
issue to raise funds to repay the government for the money it received
during the financial crisis.
"Lou asked if it would be possible for the Fed to expedite approval of CIC's
request that this investment be exempted from restrictions on investment by
bank holding companies, as the customary two-week process for considering
such exemption requests is too long to allow CIC to take advantage of this
opportunity," according to the cable.
There's no record in the cable of how Geithner responded, but it was only a
day later, on June 3, that CIC announced plans to purchase $1.2 billion in
Morgan Stanley shares.
A spokesperson for the Fed said in the instance of the June 3 CIC investment
, no application for an exemption was made to the Federal Reserve Board.
(Additional reporting by Kristina Cooke and Mark Hosenball; Editing by Jim
Impoco and Claudia Parsons) |
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