Tags: Chinese | Economist | Beijing | Cut | Fannie | Freddie | Holdings

Chinese Economist: Beijing Should Cut Fannie, Freddie Holdings

Friday, 11 Feb 2011 08:47 AM

China should “actively” reduce its holdings of Fannie Mae and Freddie Mac-related bonds to curb investment risks, said Lu Zhengwei, a Shanghai-based economist at Industrial Bank Co.

The likelihood of Congress supporting a state guarantee of the mortgage companies’ finances is becoming “slimmer” as the U.S. economy improves, easing lawmakers’ concerns about the property industry, Lu said yesterday in an e-mailed note.

U.S. Treasury Secretary Timothy F. Geithner will present Congress with three options for reducing the government’s role in the nation’s housing finance system and shrinking the footprint of the two mortgage companies, two people familiar with the plan said on Feb. 9. Geithner will release the proposal as soon as today, said an administration official who spoke on condition of anonymity because the proposal isn’t public.

Chinese institutions may be holding about $500 billion worth of bonds issued by Fannie Mae and Freddie Mac, Lu said, citing reports in the Chinese media.

China’s currency regulator issued a statement today saying that media reports that the nation had sustained losses from investing foreign-exchange reserves in Fannie Mae or Freddie Mac bonds were “groundless.” It didn’t identify the reports.

The International Finance News, an affiliate of the state- run People’s Daily, reported yesterday that China’s losses on investments in the agencies’ bonds may be $450 billion.

China’s currency reserves were not invested in the companies’ shares, the State Administration of Foreign Exchange said.

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China should actively reduce its holdings of Fannie Mae and Freddie Mac-related bonds to curb investment risks, said Lu Zhengwei, a Shanghai-based economist at Industrial Bank Co. The likelihood of Congress supporting a state guarantee of the mortgage companies finances...
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2011-47-11
Friday, 11 Feb 2011 08:47 AM
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