MNI INTERVIEW: China Should Scale Back Future UST Buys: Zheng

--Forex Reserves Should Be Used To Fund Other Fields: Policy Advisor

     BEIJING (MNI) - China should look to switch foreign exchange reserve

investments away from U.S. Treasuries and into areas of greater benefit such as

high tech as the country's economy slows and the Sino-U.S. trade dispute

deepens, a senior advisor to policymakers told MNI.

     His comments were directed at future investment plans and were not a

suggestion that the People's Bank of China should look to divest its current

U.S. bond holdings.

     "It is unnecessary for us to buy so many U.S Treasuries. Instead the

reserves should be used in fields such as high-tech research," Zheng Xinli told

MNI on the sidelines of an economic forum in Beijing, without offering any

further details.

     A former deputy-director of Policy Research Office of the CPC Central

Committee and a frequent participant in drafting annual central government

working reports, Zheng said China would not need such large forex reserves ahead

as it looks to turn the yuan into a reserve currency.

     --YUAN INTERNATIONALISATION

     "China is pushing forward yuan internationalisation to form a strong

currency in global reserves, payment and investment, particularly in the trade

of oil and iron ore," he said.

     The way in which the PBOC manages the world's largest forex stockpiles is a

closely-guarded secret, but Zheng's comments come as financial markets closely

eye its stock of UST as the dispute with Washington escalates. China's holdings

fell to a six-month low $1.171 trillion in July, down $7.7 billion from June,

according to U.S Department of Treasury data.

     China International Capital Corporation, a state-owned investment bank,

estimated in 2016 that U.S. dollar-denominated assets accounted for 66.7% of the

portfolio, slightly higher than the 63.6% average typically seen in other global

forex reserves.

     In a speech earlier, Zheng, now vice Chairman of the China Center for

International Economic Exchanges, expressed deep concern about the economic

slowdown, noting all the three drivers growth -- investment, consumption and

exports -- have been weaker.

     "The continuous fall of GDP growth would trigger many problems," Zheng

warned, saying China needs to maintain medium-to-high growth to catch up and

surpass the U.S.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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