The US plans to whittle down its reliance on a pair of huge, but fiscally fragile housing finance companies, Fannie Mae and Freddie Mac. The decision has triggered concerns over possible investment losses for Chinese institutions, which are among the international securities holders for the two firms.

According to a new Treasury report from Washington, China held about 450 billion US dollars of long-term American agency debt, as of June 30th, 2009. The bulk is likely in Fannie and Freddie bonds and securities.

The risk of possible investment losses looms, as the US ends its government role in the mortgage market. But to Chinese economist Zhao Xijun, the possibility of serious damage is slim. The influence, for the moment, is more psychological than tangible.

Zhao's view is being substantiated by a recent statement from the State Administration of Foreign Exchange.

A website statement posted on Friday says SAFE hasn't suffered any investment losses, and has been receiving regular interest and principle payments on the bonds it holds from Fannie and Freddie.

But the case has raised long-term concerns about holding large amounts of foreign reserves.

"Safety remains the primary goal for foreign exchange reserve investment. Opinions are divided as to whether China should actively cut its reserve holdings at the moment, but experts maintained that Chinese institutions take prudent actions to contain the risks." Reporter Zhang Nini said.

Even if Chinese institutions begin to sell their reserve holdings, and resort to safer modes of investment, this might only be a temporary solution.

Experts say forex risks will always exist, unless and until the yuan becomes a worldwide reserve currency.

Even though the US dollar's role as medium of exchange, or unit of accounting, will not decline rapidly in the short time ... experts hope the internationalization of the renminbi could give the currency a greater role in the global economy in the future.

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