The authorities are following closely Washington's response to the ongoing financial crisis as the turmoil has affected Chinese investment in the United States, especially the large amount of US bonds being held by the country, Chinese ambassador to the US Zhou Wenzhong has said.

"As China holds large amounts in Fannie Mae and Freddie Mac shares and in US bonds, the financial storm has definitely impacted Chinese investment. So we're paying a good deal of attention to the crisis," said Zhou in a speech on China-US trade relations at the Center for National Policy in Washington DC, on Wednesday.

The China Newsweek magazine reported on Oct 9 that $1.2 trillion of the country's $1.8 trillion foreign exchange reserves are held in the US markets. Nearly half of the funds have reportedly gone to US government housing insurers Fannie Mae and Freddie Mac, while most of the remaining half are in US bonds.

The US government had earlier announced it would take over the two mortgage giants as part of efforts to stem the financial chaos.

Continuing exchanges with the US, such as the China-US Strategic Economic Dialogue (SED), have also enabled China to maintain quick and efficient contact with the US to help face the current challenges, Zhou said.

Zhou was optimistic that the SED, established in 2006, would extend into the next US administration.

Still, some factors, especially the Pentagon's proposed $6.5 billion arms deal with Taiwan, have "disturbed" bilateral relations, Zhou said.

The proposed deal is a "gross violation of the solemn commitments" made by the US to China, Zhou said. The Aug 17 joint communique had clearly stated that the US side is committed to reducing its arms sales to Taiwan in both qualitative and quantitative terms, leading to a final resolution.

"We hope the US side will honor its commitment and abide by the one-China policy not just with words, but also action," Zhou said.

Similarly, Foreign Ministry spokesman Qin Gang warned in Beijing Thursday that repeated support for the arms deal might damage bilateral relations.

Qin also urged the US to repatriate 17 Chinese Muslim terrorist suspects, who are members of the "East Turkestan Islamic Movement". The movement is listed as a terrorist organization by the UN Security Council and the suspects have been incarcerated in the Guantanamo Bay prison camp since 2001.

A court order on Tuesday called for the US to free the 17 men. But on Wednesday, the US Court of Appeals for the DC Circuit decided to halt their release for at least another week to give the US government more time to consider the move.

(China Daily October 10, 2008)