Recently there has been media coverage indicating that China may suffer huge losses from its investments in bonds issued by the U.S.-based Fannie Mae and Freddie Mac, and the losses may amount to 450 billion U.S. dollars. An interview was conducted on relevant issues by officials of the SAFE.

Q: There has been media coverage that China may suffer great losses from its investments in bonds issued by the U.S.-based Fannie Mae and Freddie Mac, and the amount may reach up to USD450 billion. Is this true? If so,  what is the actual amount?

A: The white paper concerning the reform of Fannie Mae and Freddie Mac soon to be issued by the U.S. Treasury Department has aroused widespread concern that China may suffer losses in its foreign exchange reserves. There has been media coverage indicating that the lossesmay amount to 450 billion U.S. dollars. These reports are utterly groundless.

Up to now there have been smooth capital repayments with interest from Chinas bond investments in Fannie Mae and Freddie Mac by capitalizing on the foreign exchange reserves. No losses have been incurred. Based on the relevant indices that are widely used by the market, during the three years from 2008 to 2010, Chinas annual average rate of return on its bond investments in Fannie Mae and Freddie Mac hovered around 6%. The country has never allocated its foreign exchange reserves for stock investment in Fannie Mae and Freddie Mac. So the decline in the stock price and the delisting of the stocks of the two companies have no effect on Chinas foreign exchange reserves.