March 16, 2009

China’s reserve losses estimated at $80B

China's losses on risky bets placed with its foreign reserve funds from 2007 through 2008 may have exceeded $80 billion, a foreign investment economist said.

Brad Setser of the Council of Foreign Relations in New York said Chinese losses on roughly 15 percent of its $2 trillion foreign exchange reserve was about 50 percent of its $160 billion investment, the Financial Times reported Monday.

China's State Administration of Foreign Exchange only reports its activities to top government officials, but the U.S. Treasury said China held about $100 billion in U.S. equities by the end of June 2008, three times what it held the previous year.

SAFE has built up one of the largest U.S. equity portfolios of any foreign government entity investing abroad, including the major sovereign wealth funds, Setser said, adding it appeared SAFE began diversifying into equities early in 2007 and, rather than being deterred by the subprime crisis, it continued to buy.

The bulk of China's U.S. investment remains U.S. Treasury bonds. China's Prime Minister Wen Jiabao said Friday he was concerned about the U.S. economy. He called for the United States to take measures to protect its good credit, the Times said.