PBoC in finance ministry talks for capital: report

The newspaper said that it had spoken to three unnamed officials familiar with the discussions, which had been called because the central bank allegedly has a capital base of just $3.2 billion after spending about $1 billion on US Treasuries and US agency debt [Fannie Mae, Freddie Mac and Federal Home Loan Bank paper] over the past seven years.

The central bank would likely be unwilling to sell such assets given current financial market conditions, particularly the panic surrounding Fannie Mae and Freddie Mac, the government-sponsored entities that insure about half of the US's mortgage stock.

Commentators told the New York Times that any injection of finance-ministry capital threatened to compromise the central bank's independence.

A research note by Merrill Lynch, an investment bank, published in July, said that China held $438 billion in US Agency debt, about 27% of the total amount held by foreign investors, and just short of $500 billion in Treasuries. According to the note According to the note, the majority of agency debt is held by the State Administration of Foreign Exchange, the central bank's foreign-exchange reserves management unit.

The People's Bank has also recently bought several small stakes in listed UK companies, including a $246m stake in Prudential, Britain's second-biggest insurer.

Both the central bank and the finance ministry declined to comment to the New York Times on the story.

Click here to read the Merrill Lynch note