BEIJING, Dec 3 (Reuters) - China should keep buying U.S. government bonds despite Washington's financial woes, an expert at a leading Chinese think-tank said in an official newspaper on Wednesday, ahead of economic talks between the two nations.
Zhang Ming, an economist at the Chinese Academy of Social Sciences, told the overseas edition of the People's Daily that some economists believe the value of the U.S. dollar will drop as U.S. economic problems mount, dragging down the value of U.S. government bonds held by China.
But Zhang said he and many other Chinese experts contend it makes sense for his government to keep buying the bonds to avoid even worse losses to its huge forex reserves.
"More experts are steadily recognising that continuing to purchase U.S. government bonds to help the U.S. financial market revive and stabilise would overall help minimise the harm to Chinese forex reserves from the sub-prime crisis," Zhang told the Chinese-language paper, which acts as a mouthpiece of the ruling Communist Party.
"If our country reduces its U.S. dollar assets and increases assets in other currencies, that will lead to quite large losses in the market value of the forex reserves," the report cited Zhang as saying.
The positive comments about Chinese investments in U.S. bonds come a day before U.S. Treasury Secretary Henry Paulson and other Washington officials sit down with their Chinese counterparts in Beijing for their regular "strategic economic dialogue."
China does not disclose the level of its U.S. Treasury and other agency debt holdings, but analysts have estimated it has between $1 trillion and $1.5 trillion worth of U.S. debt securities.
China has almost $2 trillion in foreign currency reserves, the largest in the world, and any move out of U.S. dollar assets would send tremors through global financial markets.
Beijing officials have discounted such moves, a point echoed by the latest report.
But the People's Daily report said experts also believe that in the longer term, China should "not abandon diversifying its reserve holdings." (Reporting by Chris Buckley; Editing by Ken Wills)