While in Beijing on her first overseas trip as US secretary of state, Clinton urged China on Sunday to keep buying US debt, saying it would help jumpstart the flagging US economy and stimulate demand for Chinese exports.

In fact, China has to keep investing in the United States if it wants to protect the value of its trillions in dollar holdings, said Lu Feng, an economist at Peking University's China Center for Economic Research.

"China is sitting on huge piles of foreign exchange and it will increase its holdings of US Treasuries," Lu said. "Objectively speaking, helping the US economy is good for both China and the US."

China overtook Japan last year as the United States' biggest foreign creditor, and had 696.2 billion dollars of Treasury Bills in December, according to the latest official data from Washington.

Its world-largest foreign exchange reserves, which stood at 1.95 trillion dollars as of the end of December, also mean it is the world's biggest foreign holder of the US currency.

Clinton sought to highlight the importance of the ever-building inter-dependency between the world's biggest and third biggest economies.

"By continuing to support American Treasury instruments the Chinese are recognising our interconnection. We are truly going to rise or fall together," Clinton said at the US embassy in Beijing on the weekend.

Chinese Foreign Minister Yang Jiechi also indicated on Saturday after talks with Clinton that China would not drastically change its US Treasury policies.

However, the countries' interconnectedness has attracted criticism within China, particularly as the global economic crisis slowed the Asian giant's remarkable growth and its high profile US investments showed dismal returns.

Critics have charged that, as a developing country, China should be investing its cash at home instead of subsidising the world's richest country, or else diversifying into other foreign assets.

China's economic planners also understand the dilemma of investing so heavily in US debt.

"If it ceased to buy US treasuries, the value of existing holdings of dollar-denominated assets would drop sharply," said Su Chang, Beijing-based economist with CEBM Group, a consulting firm.

"(But) if China continues to buy them, it needs to worry about the possible depreciation of the dollar in future."

Brad Setser, an economist with the New York-based Council on Foreign Relations, calculated that China provided close to 500 billion dollars in financing to the United States last year -- too much, he argued.

"China now has more exposure to the US than is in its long-run interest," Setser wrote on Monday. Economists argue China risks being trapped as the value of its US assets would fall if it reversed course.

"I also believe the US relies far more on a single government for financing than is in its long-run interest."

Both countries, he said, should have an interest in China gradually providing less ongoing financing to the United States.

earlier related report
Spain's BBVA doubles stakes in China's CITIC Bank
Spain's second-largest bank BBVA has doubled its stake in China's CITIC Bank, the Chinese lender said Monday, in contrast to other foreign institutions that are reducing their investments.

BBVA increased its stake in the Chinese bank to 10.07 percent from 4.83 percent, CITIC Bank said in a statement filed with the Shanghai stock exchange, finalising a deal first announced eight months ago.

"It reflects that the financial crisis has had a relatively limited impact on BBVA and that it still retains some strength," said Wu Yonggang, an analyst with Guotai Jun'an Securities.

"Second, it shows the bank continues to hold a positive outlook of Chinese banks," he told AFP.

The deal was first announced in June 2008, when BBVA said it had agreed to pay 800 million euros (one billion dollars) to double its share in CITIC Bank.

It also held a two-year option to buy an additional five percent of the Chinese bank and thus increase its stake to 15 percent, according to the agreement.

The completion of the transaction stood out against the backdrop of the global financial crisis, as a number of foreign lenders are selling off or scaling back their holdings in Chinese banks due to cash shortages at home.

Britain's Royal Bank of Scotland said last month that it had sold its 4.26-percent stake in Bank of China for 1.6 billion pounds (2.3 billion dollars).

China Construction Bank in January confirmed that major shareholder Bank of America reduced its stake, with reports saying the firm sold 2.8 billion dollars' worth of shares in the Chinese lender.

UBS AG, a shareholder of Bank of China, announced in late 2008 that it had sold its entire 1.33 percent stake in the Chinese bank.

BBVA, based in Spain's northern Basque region, posted a net profit of 5.0 billion euros in 2008, down 18.1 percent from the previous year as the global financial crisis hit its bottom line.

Its results last year included a provision of 302 million euros to cover its exposure to the alleged fraud by US investment broker Bernard Madoff.

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