China's foreign exchange regulator has refuted media reports that the country may lose up to $450 billion by holding bonds of Fannie Mae and Freddie Mac, the US mortgage giants.
The reports suggested that the US government might phase out the two companies. "The report is groundless," the State Administration of Foreign Exchange (SAFE) said in a statement published on its website on Friday, without referring to any specific media outlets.
The regulator said that it has been receiving regular payments of interest and principal on the bonds it holds in the two companies.
"Calculated in accordance with widely used indexes, from 2008 to 2010 the annual investment return on the debt was about 6 percent on average," the statement said.
China has never invested in the two companies' equities, and so it hasn't been affected by the decline in their stock prices, it added.
The administration reiterated that security is its top priority when making investments using the country's foreign reserves, and it has already taken appropriate measures to offset major potential risks.
China's foreign reserves rose to a record $2.85 trillion at the end of last year, an 18.7 percent increase year-on-year, according to statistics from the People's Bank of China, the central bank. Media reports said that China holds about $450 billion of Fannie Mae and Freddie Mac bonds.
The Obama administration is scheduled to unveil long-awaited proposals presenting three different visions for the replacement of Fannie Mae and Freddie Mac, which are set to be slowly wound down, reported Reuters.
The proposals will not make one single recommendation, but will broadly outline alternatives to reduce the government's role in the mortgage market, the Reuters report said.
Fannie Mae and Freddie Mac buy mortgages and sell them on to investors to free up cash which is then re-lent.
The companies were taken over by the Bush administration in late 2008 amid mounting losses from bad loans and have since jointly received more than $150 billion in taxpayer aid.
Lu Zhengwei, chief economist at the Industrial Bank, warned on Thursday in a research note that China should be aware of risks in its holdings of debt issued by the two companies, and must choose an appropriate time to sell the securities.