China reduces holdings of US government debt

10:18, August 17, 2010      

Email | Print | Subscribe | Comments | Forum 

China reduced its holdings of U.S. Treasury debt for a second month in June while the holdings of Japan and Britain rose.

China’s holdings fell by $24 billion to $843.7 billion, a decline of 2.7 percent, the Treasury Department said Monday in a monthly report.

Total foreign holdings of Treasury securities rose $45.6 billion to a total of $4 trillion.

The debt figures are being closely watched at a time when the U.S. government is running up record annual deficits. A drop in foreign demand would lead to higher interest rates in the United States.

It would start with the U.S. government paying more interest on its $13.3 trillion national debt and then ripple through the economy. Consumer loans such as home mortgages and auto loans track the yields on Treasuries, so they could rise, too.

So far, interest rates in the United States have remained extremely low. A weak economy has depressed borrowing by the private sector and the Federal Reserve has kept a key interest rate at a record low level of zero to 0.25 percent in an effort to spur stronger growth.

China remains the largest foreign holder of U.S. Treasury securities. The $24 billion decline in China's holdings in June followed a $32.5 billion drop in May. China's holdings had hit a high for this year of $900.2 billion in April.

There are concerns that China could influence U.S. interest rates by rapidly selling off its holdings of U.S. debt. That could lead others to dump their holdings and result in a spike in U.S.interest rates.

But analysts say China has a lot to lose from that approach and that it is more likely to sell a little bit at a time.

"While it would hurt the United States if China started selling off our securities, it would hurt China just as badly because it would drive down the value of their holdings," said David Wyss, chief economist at Standard & Poor's in New York.

Wyss predicted that China will slow its acquisition of new U.S. government debt while diversifying its holdings. Wyss said that process has already begun, noting China's recent acquisition of energy and other natural resource holdings in Latin America and Africa.

Japan, the second largest foreign owner of Treasury bonds, increased its holdings in June to $803.6 billion. Britain's holdings rose 3.5 percent to $362.2 billion.

Source: Agencies


  • Do you have anything to say?


Special Coverage
  • Premier Wen Jiabao visits Hungary, Britain, Germany
  • From drought to floods
Major headlines
Editor's Pick
  • Staff members watch a screen showing the blast-off of the Long March-2FT1 carrier rocket loaded with Tiangong-1 unmanned space lab module at Beijing Aerospace Control Center, Sept. 29, 2011. Commander-in-chief of China's manned space program Chang Wanquan announced Thursday night that the launch of Tiangong-1 space lab module was successful. (Xinhua/Wang Shen)
  • Chinese President Hu Jintao watches the launch of Tiangong-1 space lab module at Beijing Aerospace Control Center in Beijing, capital of China, Sept. 29, 2011. Other members of the Standing Committee of the Political Bureau of the Communist Party of China (CPC) Central Committee, including Wu Bangguo, Jia Qinglin, Li Changchun, Xi Jinping, Li Keqiang and Zhou Yongkang, are also present. (Xinhua/Rao Aimin)
  • The graphics shows the launch procedures of the carrier rocket of Tiangong-1 space lab module, Long March-2FT1 on Sept. 29, 2011. (Xinhua/Lu Zhe)
  • Image taken from Beijing Aerospace Control Center shows a Long March-2FT1 carrier rocket loaded with Tiangong-1 unmanned space lab module blasting off from the launch pad at the Jiuquan Satellite Launch Center in northwest China's Gansu Province, Sept. 29, 2011. (Xinhua)
  • On Sept. 28, tourists travel around the Mingshashan Scenic Area in Dunhuang, Gansu province by camel. With the National Day vacation right around the corner, more and more tourists from home and abroad are going to Dunhuang. Riding on a camel, they travel in the desert to enjoy the cities rare form of natural scenery. (Xinhua/Zhang Weixian)
  • Chinese forest armed forces work together with forest firefighters on Sept. 28. (Xinhua/Chai Liren)
Hot Forum Discussion