China denies rumours of losing $450 bn in Fannie, Freddie debt

BEIJING: 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, which according to speculation may be phased out by the US government.

"The report is groundless," China's State Administration of Foreign Exchange (SAFE) said in a statement.

The regulator said it has been receiving regular payments of interest and principal on the bonds it holds in the two companies, state run China Daily reported.

"Calculated in accordance with widely used indexes from 2008 to 2010, the annual investment return on the debt was about 6 per cent on average," the statement said, adding China has never invested in the two companies' equities, therefore it hasn't been affected by the decline in their stock prices.

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 per cent increase year-on-year.

China reportedly holds about $ 450 billion of Fannie Mae and Freddie Mac bonds.

Reports from Washington said that Fannie Mae and Freddie Mac were set to be wound up under new proposals being finalised by the Obama administration to reduce the government's role in the mortgage market.

Fannie Mae and Freddie Mac buy mortgages and sell them on to investors to free up cash which is then re-lent.

These two companies were taken over by the Bush administration in late 2008, after reporting huge losses from bad loans and jointly received more than $ 150 billion in taxpayer aid since then for their revival.