China reportedly is reviewing its euro zone bond holdings because of growing concerns about gaping deficits in countries including Greece and Portugal.
Representatives of China's State Administration of Foreign Exchange, or Safe, which manages the reserves under the country's central bank, were said to have been meeting with foreign bankers in Beijing in recent days to discuss the issue.
Safe, which holds an estimated $630 billion of euro zone bonds in its reserves, has expressed concern about its exposure to the five so-called peripheral euro zone markets of Greece, Ireland, Italy, Portugal and Spain, the Financial Times newspaper reported.
Any move by Safe would mark a significant change in direction, as Beijing has been trying to diversify away from the U.S. dollar in recent years by buying a greater proportion of assets denominated in other currencies, the report said.
“This is a big strategic shift,” one investor told the newspaper. "Last year, the Chinese were trying to reduce their exposure to dollar assets by buying euro zone assets. This would be a complete reversal.”
A spokesman for Safe refused to comment. An estimated 70 percent of China’s reserves are held in U.S. dollar securities, but the composition and management of the funds controlled by Safe are regarded as state secrets, the report said.
Analysts say that Safe rarely cuts its existing holdings significantly as it has so much new money to invest every month.
Treasury Secretary Timothy Geithner said on Wednesday that financial markets want to see euro zone countries put into action their $1 trillion standby package designed to stabilize the European currency, Reuters reported.
Geithner, on a visit to London, also urged Europeans to work for a globally consistent approach to financial reform as the European Union said it might go it alone with a crisis levy on banks.
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