A lot of government and SOE officials in China always seems to fear us Western media folk. Some of the higher-ups (and even the lower-downs) fear we are out to overthrow the government or at the very least misrepresent the country.

Does AsiaPundit want to see a downfall of the Chinese Communist Party? I won’t answer that question directly but I will say that there are more than a few parts of the government that are worth keeping. For instance, some of those guys at the People’s Bank of China are pretty bright.

Member of the PBoC’s monetary policy committee in an undated interview says that China, and East Asia, must reduce its dollar and treasury holdings.:

…in the first stage we must reduce accumulation, then later we should reduce our reserves….[China and Asian countries] don’t need that large an amount- more than $2 trillion- of foreign exchange reserves…. This is a very big problem and I think the Chinese government should take some action to reduce the growth rate of the accumulation of foreign exchange reserves as we’re still facing the possibility of a big devaluation of the US dollar, so the capital losses will be huge. If that happens, it will be tremendous hit to the Chinese economy."

This is hardly the statement of a gentleman with a benign view toward the US dollar’s valuation. It is instead a gentleman, in a position of authority, with a great deal of concern. He went on: "The trouble is, with such a huge amount of foreign exchange reserves, that there is no way to spend it very quickly and there’s no plan to sell it of course– otherwise that inflicts damage on ourselves. You don’t want to dump shares when the stock market has not collapsed yet and you are the biggest shareholder." Then, he said "all east Asian countries have tremendous foreign exchange reserves and they all want to get rid of them, but if you do this then you cause competitive devaluation, not of their own currencies, but of the US dollar. So we should do this in an orderly fashion. If Asian countries moved too fast, everyone would lose… It would be utterly unfortunate if Japan sells a proportion [of their reserves, for] that causes problems. Then China panics and China sells a proportion — it would be very damaging."

The "nicest possibility" for China, Japan and the US to escape this problem was for further "tightening of US monetary policy so that further dramatic devaluation of the US dollar can be stopped. Then, because of the slowdown in the economy, the US current account deficit would reduce and in this way will create conditions for East Asian countries to get off the hook."

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