China trims US debt holdings

10:36, January 19, 2011      

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China, the biggest buyer of United States Treasury securities, cut its holdings in November after four months of gains.

China's holdings of US Treasury debt dropped 1.2 percent to US$895.6 billion, the US Treasury Department said yesterday.

Overall, foreign holdings of Treasury securities rose 0.9 percent to US$4.35 trillion. That indicates other nations still have an appetite for Treasury debt even as the US government is running US$1 trillion-plus annual budget deficits.

Of the total foreign holdings, US$2.82 trillion or about two-thirds, are held by foreign governments and central banks.

Foreign demand for US Treasury debt has been critical in helping keep interest rates low. If the US had to finance all of its debt domestically, it would drive up US interest rates not only for the federal government but also for American companies and consumers.

That would slow US growth at a time when the Federal Reserve is trying to keep interest rates low to help boost the economy.

Foreigners seek US Treasury securities because they are viewed as the world's safest investment. The US government has never missed a debt payment. However, that could change in the next few months.

The US will hit its federal debt ceiling of US$14.3 trillion this spring. Republicans, who control the US House, are vowing to oppose increasing the debt ceiling unless it is accompanied by significant cuts in government spending.

Treasury Secretary Timothy Geithner warned lawmakers last week that even a short-term default would have "catastrophic economic consequences." The fear is that interest rates could rise and remain high for decades.

Yesterday's Treasury report said Japan, the second-largest holder of Treasury debt, expanded its holdings to US$877.2 billion in November, up 0.3 percent.

Britain, ranked third, saw its Treasury holdings surge 7 percent to US$511.8 billion.

Source: Shanghai Daily
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