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Beijing expected to push for stable dollar and market access

By Li Xiang (China Daily)
Updated: 2011-05-10 07:34

BEIJING - China will continue to press the United States during the third round of the China-US Strategic and Economic Dialogue to keep the dollar stable in order to ensure the safety of Beijing's dollar assets, analysts said on Monday.

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But Washington's promise of a stable dollar is unlikely to change the long-term trend of a weakening dollar and China should continue to diversify the investment portfolio of its huge foreign exchange reserves to protect its assets, experts added.

"Although Washington has repeatedly said a stronger dollar is in the interest of the US and the world economy, the long-term trend of a weaker dollar is unlikely to change and the US is unlikely to find a way to balance its budget in the short term," said Dong Yuping, a financial researcher at the Chinese Academy of Social Sciences.

The country needs to find projects overseas that yield higher investment return than simply buying huge quantities of US treasury bonds, Dong added.

China, the biggest buyer of US debt, is under ever increasing pressure to diversify the investment of its $3-trillion foreign exchange reserves, although Beijing has denied it lost about $271.1 billion on its foreign exchange reserves accumulated between 2003 and 2010 because of a weaker dollar.

Workers weave blankets that will be exported to the United States at a woolen textile mill in Hai'an, Jiangsu province, in this file photo. [Xu Ruiping/China Daily]

Analysts also expect that improving the investment environment and further opening each other's markets will replace the issue of the yuan's exchange rate as the focus of the two-day dialogue.

"Whether it is the US complaining about China's investment environment or China asking for greater market access for Chinese companies in the US, the intention is the same: to demand the other side eases restrictions on imports and investment," said Xi Junyang, a professor at the Shanghai University of Finance and Economics.

"But it takes time to eliminate the differences between the two sides, so a platform for communication is necessary."

Chinese officials have asked the US to ease restrictions on its export of high technology to China and demanded greater market access for Chinese companies.

"We hope that the US will provide a healthy legal and institutional setting for investment by Chinese companies," Vice-Minister of Finance Zhu Guangyao said. "In particular, we hope that the US will not discriminate against the State-owned companies."

Analysts said that more investment opportunities for Chinese companies in the US will help ease the pressure on the country's swelling foreign exchange reserves.

"But it is not easy for the two sides to reach an agreement on the issue because the US is asking for something that China finds hard to compromise on, which is to change its model of a State-driven economy," Dong said.