China's holdings of U.S. debt rise again

10:05, May 19, 2010      

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China increased its holdings of U.S. Treasury debt for the first time in six months - a trend analysts said could last as the dollar is expected to continue its strong rise.

The U.S. Treasury Department reported Monday that China's holdings of U.S. Treasury securities rose to $895.2 billion in March from $877.5 billion in February. The $17.7 billion increase marks the first by the largest U.S. debt holder since September.

Analysts said China's increased foreign exchange reserves in the first quarter and European financial woes triggered by the Greek sovereign debt crisis are behind the move to raise holdings of U.S. debt.

China's foreign exchange reserves amounted to $2.45 trillion by the end of March, up $47.9 billion from the end of last year.

"The increased reserves need to find a channel for investment," said Zhang Bin, economist at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences (CASS).

The stronger dollar is another major factor in China's investment choice, he said. The euro has stayed weak against the greenback after the Greek crisis unfolded. On Monday, the euro hit a four-year low of $1.2234 before recovering slightly on Tuesday afternoon.

"The dollar is relatively safe for investors," Zhang said.

Despite a nearly $1 trillion bailout plan by European countries and the International Monetary Fund, investors have remained skeptical about the continent's economic prospects. They fear that the cut in fiscal expenditures, among others, would lead to a slowdown in growth.

"Risks persist (in Europe), with governments implementing measures in the face of large deficits and swelling debts," said a statement by Coface, a leading international credit insurance and credit management services group.

"Greece, Portugal, Spain, and Ireland are likely to suffer from extended recessions (and) western Europe's economic recovery is likely to be subdued".

The trend of a weak euro and a strong dollar will continue, analysts said. The dollar could continue to stay strong in the coming one to two years, said Dong Xian'an, chief economist of Industrial Securities.

"And China may continue to increase U.S. Treasury debt holdings if its foreign exchange reserves pile up," Zhang said.

According to U.S. Treasury data, China had been cutting its holdings of U.S. Treasury bonds in the previous several months.

Japan was the No 2 foreign holder of U.S. Treasury securities by March, increasing its holdings by 2.1 percent to $784.9 billion.

Britain, the third-biggest holder, was a net buyer, raising its holding to $279 billion from $233.5 billion in February.

Source: China Daily


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