China should trim its holdings of U.S. debt and can stop buying dollar bonds, a vice chief of the national parliament said, rattling markets on Tuesday, weeks before President Hu Jintao visits Washington.

Cheng Siwei speaks at a Fortune Forum in Beijing in this May 17, 2005 photo. He suggested China cut its holdings of U.S. debt and stop buying dollar bonds on Monday, April 3, 2006. [newsphoto]

As China is a leading financier of the U.S. current account deficit and holds the world's largest foreign exchange reserves, the comments from Cheng Siwei sent the dollar lower against the euro and yen and pushed U.S. government bond prices down.

The comments could add to the contentious issues that will come up during Hu's visit, notably what some U.S. politicians and companies see as currency manipulation by China, accused of holding down the yuan to gain an unfair trade advantage.

Hong Kong's Wen Wei Po newspaper carried Cheng's comments, made in Hong Kong on Monday.

"China can stop buying dollar-denominated bonds, increase buying of U.S. products and gradually reduce its holdings of U.S. bonds," the newspaper quoted him as saying.

"But all these must follow the prescribed order," he said, without setting out that sequence.

An official at the central bank said this was merely Cheng's personal opinion and a reporter present for the speech said Cheng had stressed he was expressing his own views.

"The comments only reflected his academic view. The People's Bank of China has been studying issues regarding the management of foreign exchange reserves," the central bank official told Reuters.

Cheng is one of more than 10 vice chairpersons of the parliament, as well as chairman of the China Democratic National Construction Association, one of eight political parties in China.
 
"Cheng Siwei is a scholar and at the same time a national leader," said Zhang Zuhua, a former official familiar with the workings of the government. "He often expresses his views as an expert, and doesn't just give bureaucratic talk.