Wen Jiabao has 'enough ammunition' to aim for 8% economic growth target – but fears rising US deficit

This article is more than 11 years old

This article is more than 11 years old

China is worried about its vast United States treasury holdings, premier Wen Jiabao said today, urging Washington to safeguard their value.

Wen also pledged to expand the country's stimulus package if necessary, as Beijing undertakes what he admitted was the difficult task of shoring up growth.

His remarks came ahead of the meeting of finance ministers and central bankers in London this weekend to lay the groundwork for next month's G20 summit on the global downturn.

Beijing wants to head off protectionism and pressure for further appreciation of the yuan, which would cripple its plummeting export sector. It is also pressing for restructuring of the International Monetary Fund to pay more attention to the interests of developing countries.

While relations with the US are broadly stable, there was displeasure when treasury secretary Timothy Geithner said President Barack Obama believed China was manipulating its currency. The administration subsequently rowed back from the remarks.

This week also saw a spat between the two countries when America accused the Chinese navy of harassing one of its surveillance ships in international waters in the South China Sea. Beijing alleged that the US vessel was operating illegally.

Speaking at his annual press conference at the close of China's parliament, Wen said: "We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried."

He called on Washington "to honour its words, stay a credible nation and ensure the safety of Chinese assets". China had worked to diversify its $2tn-worth of foreign exchange reserves, although it remains the single largest holder of US government debt, which accounts for about half of its stockpile.

Washington needs to continue selling treasury notes to fund its $787bn stimulus package. Last month, the secretary of state, Hillary Clinton, urged Beijing to maintain its stock as she visited China.

"They are worried about forever-rising deficits, which may devalue treasuries by pushing interest rates higher," Frank Gong, a JP Morgan economist, told Reuters. "Inside China there has been a lot of debate about whether they should continue to buy treasuries."

Any change would be gradual because abrupt action would punish the dollar – damaging the value of existing holdings and further hitting the sale of goods to the US, its biggest export market.

Wen said it would be difficult but possible to reach China's 8% growth target. Independent economists suggest the figure could be as low as 5% – enviable for most major economies, but potentially too low to keep unemployment down.

Beijing announced a 4tn yuan (about £400bn) plan in November, but Wen promised: "We have prepared enough ammunition and we can launch new economic stimulus policies at any time."

He said years of growth and prudent management had left more leeway to run a larger fiscal deficit and take on more debt. "The most direct, powerful and effective way to deal with the current financial crisis is to increase fiscal spending – the quicker the better," he said.

The premier acknowledged that unemployment was a "very serious" problem but said the country was still stable.

"I really believe we will be able to walk out of the shadow of the financial crisis at an early date," he said. "After this trial, I believe the Chinese economy will show greater vitality."

He promised to focus on job creation and give more help to smaller companies, which he said generated 90% of Chinese new employment. Many economists think the government has done too little to aid entrepreneurs.

Figures released this week show a mixed picture for the Chinese economy, with exports slumping by more than 25% in February and retail sales weakening, but a sustained surge in bank lending which some analysts believe offers hope of a recovery.