Fears that China intends to reduce the amount of US government bonds it holds as part of its foreign exchange reserves, shook the US dollar and US capitalism yesterday.
Hong Kong newspaper Wen Wei Po reported that China’s parliamentary vice-chairman, Cheng Siwei had called for a change in the make-up of its foreign reserves holdings.
Cheng said: ‘China can stop buying dollar-denominated bonds, increase buying of US products and gradually reduce its holdings of US bonds.’
Second only to Japan, China is a major investor in US debt, holding about £260 billion in US Treasury bonds.
A major reduction in China’s dollar assets would crash the US dollar and seriously damage the US economy.
Beijing has already been spreading its risk by accumulating more non-US dollar assets in recent times.
In European trading yesterday, the US dollar fell against the euro, the British pound and the Japanese yen.
Economists also expressed fears that, should China cut its US dollar holdings, there will be massive upward pressure on interest rates.
Beijing quickly moved to deny that Cheng’s remarks, represented Chinese government policy or the policy of the Chinese Central Bank.
However, the Chinese parliamentary vice-chairman’s remarks has put further pressure on the already strained trading relationship between China and America on the eve of Chinese president Hu Jintao’s visit to Washington later this month.
The US has been putting pressure on Beijing to let the yuan trade more freely against other currencies, claiming that its value has been artificially depressed.
Washington has blamed its $202bn trade deficit with China, partly on alleged dumping by Beijing.
l Meanwhile, the weakness of the British economy was further exposed yesterday.
The Office for National Statistics (ONS) revealed that UK manufacturing output fell by 0.2 per cent in February.
This was after forecasts of a 0.2 per cent rise for the period.
The ONS noted that a ‘significant decrease in output between January and February was in the chemicals and man-made fibres industries where output decreased by 1.8 per cent.’
It added: ‘The overall Index of Production decreased by 0.3 per cent between January and February. Mining and quarrying output decreased by 1.3 per cent, while energy supply output decreased by 0.3 per cent.’
• Second news story
SADDAM LASHES PUPPET DEATH SQUADS
Iraqi President Saddam Hussein yesterday slammed the puppet Interior Ministry for running death squads.
Brought back for cross-examination, Saddam immediately launched a defiant attack on the Interior Ministry saying: ‘They’re the ones who kill thousands in the street and torture them.’
When chief judge Rauf Abdel Rahman told him to refrain from political statements, Saddam said: ‘You’re scared of the interior minister, he doesn’t scare my dog.’
In further testimony, he said: ‘The witnesses who testified were brought here after being bribed and briefed on what was to be said.’
Saddam challenged judge Rahman, saying: ‘Who could dare to give a verdict against the president who defended his country and stood up against those who fought against Iraq?’
Saddam appeared on his own yesterday. He is on trial with seven others for the alleged killing of 148 people in 1982 in Dujail village.
Saddam dismissed evidence suggesting he approved the execution of people under 18 – the minimum age for death sentences under Iraqi law.
Chief prosecutor Jaafar al-Moussawi presented the court with some of the identification cards of children and read out their dates of birth.
But Saddam said ID cards could easily be forged, insisting: ‘There is a clear ulterior motive by those who have given you these documents.
‘You can buy IDs like this in the market. Is it the responsibility of the head of the state to check the IDs of a defendant and see how old he is?’
He also demanded that an international body examine signatures on an order approving death sentences against those accused of organising an assassination attempt against him in Dujail the same year.
His appearance came a day after the court announced that he would face new charges of genocide in relation to actions taken against Kurds during the Iran-Iraq war in the 1980s, known as the Anfal campaign.
The Iraqi president has rejected suggestions from his defence team to move the trial out of Iraq.
‘Saddam told us on this issue, “I was born in Iraq and I want to die there”,’ said his Jordanian lawyer Salah al-Armuti.