China's Hu, Bush talk on financial crisis
Chinese President Hu Jintao and US President George W. Bush spoke by telephone about the financial crisis engulfing Wall Street, China News Service reported.
The state-run news agency said the two leaders spoke at Bush's request.
“We have noticed that the United States has taken some important measures to stabilize the domestic financial market, and we hope these measures can achieve quick results so that economic and financial conditions in the United States will gradually improve and turn better,” the news agency paraphrased Hu as saying.
The two spoke at the end of a weekend of intensive talks in Washington between Bush's administration and Congress to hammer out details of an unprecedented $700-billion bank bailout to forestall further financial market turmoil that risks plunging the economy into a deep recession.
Hu said the US plan was in the interests of both the United States and China.
“It is also conducive to maintaining international financial market stability in order to promote the stable and healthy development of the world economy,” China News Service paraphrased Hu as saying.
Seven Chinese banks have reported exposure of more than $700 million to failed investment bank Lehman Brothers. Lehman also guaranteed $500 million in structured notes held by a Chinese overseas investment fund.
But China's capital controls and the overwhelmingly domestic focus of its banks and insurers have largely insulated the country from the immediate fallout of the turmoil on Wall Street.
However, China has a huge stake in the health of the US financial system, not least because an estimated two-thirds of its $2 trillion in foreign exchange reserves is invested in dollar bonds.
Beijing is a big holder of US treasuries and of debt issued by the two mortgage agencies, Fannie Mae and Freddie Mac, that the US Treasury effectively nationalized this month.
So a ballooning of US government debt that drove down bond prices or the value of the dollar would spell big losses for China.
Looked at in another way, the United States could remain heavily reliant on Beijing to buy the extra US debt needed to fund the bailout.
The China News Service story did not say whether Hu and Bush discussed possible investments by Chinese institutions in US financial firms desperate to replenish capital depleted by writedowns on mortgage loans and securities.
China Investment Corp, the country's $200 billion sovereign wealth fund, is in talks to increase its 9.9% stake in Morgan Stanley.
US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke hatched the unprecedented rescue plan amid concerns that other major banks could collapse and that credit markets were close to freezing, threatening the US and global economy.
Under his plan, foreign banks with operations in the United States could also be eligible to sell illiquid residential and commercial mortgage-related assets to the Treasury.
Some US lawmakers are demanding in return that foreign governments set up similar bailout programs.
“We have a global financial system and we are talking very aggressively with other countries around the world, and encouraging them to do similar things, and I believe a number of them will,” Paulson said on ABC television on Sunday. (Reuters)
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