Yahoo Finance:

Concerns are flaring in China that the huge US stimulus plan could hurt dollar-denominated assets, with some observers urging China to cut US Treasury holdings, official Xinhua news agency said Wednesday. Increased borrowing by the United States to fund the 787-billion-dollar stimulus package that President Obama signed into law Tuesday could lead to a record US deficit that hits Chinese-held assets, it said in a report. "To rescue the ailing US economy by increasing government borrowing will create a record-high federal deficit," the official agency said, quoting Yu Zuyao, an economist with a top government think tank. "This can further lead to catastrophic consequences such as serious inflation and US dollar depreciation," it quoted Yu, of the Chinese Academy of Social Sciences, as saying. China’s forex reserves, largely invested in US treasury bonds and other dollar-denominated assets, could be exposed to significant risks, Yu said. China has the world’s biggest forex reserves, which reached 1.95 trillion dollars by the end of 2008.

My comment: If you have been watching the news lately you will notice that China has been out recently buying stakes in various commodity producing companies. This may be an attempt to diversify out of the dollar. With all of the debt that will be issued by the US to cover all of the bailouts it is obvious, at least to the Chinese, that the long term prognosis for the dollar is not good.

John Polomny
The Real Deal