Govt drops US bills for European bonds

09:30, August 18, 2010      

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The Chinese government has reduced its US Treasury bond holdings for the second straight month to $843.7 billion in June, a move to diversify holdings, the US Treasury Department said Monday.

  The newly released figure is the lowest in the past year. In May, China's holdings for US long-term debt reached $867.7 billion, and $900.2 billion in April, according to Treasury.

  China, the largest US Treasury bond holder, held 10 percent of the $8.18 trillion Treasury debt in July. Japan took the second-largest position with $803.6 billion, or 9.8 percent, while Britain had $362.2 billion, the Treasury said.

  China's holdings of US Treasuries have nearly doubled in the last two years. Beijing held $421.1 billion in the treasury bonds in March 2007, before the financial crisis.

  "The country's cut back on the US treasury bond was a very small portion of its holdings. It should be viewed as a small adjustment," said Zhao Xijun, deputy director of the School of Finance at Renmin University of China.

  "Cutting US debt is a move to diversify investment risks, as China has been criticized for its stand alone portfolio," said Tan Yaling, head of the China Forex Investment Research Institute. "This is simple market behavior because the dollar was lower recently against the euro and Japanese yen."

  Last month, China bought €400 million ($505 million) of Spanish treasury bonds. And early this month, China bought 1.73 trillion yen ($23 billion) of Japanese debt.

  China's foreign reserves, the world's largest, jumped $453 billion, or nearly a quarter, to $2.4 trillion last year.

  Portfolio of the country's foreign reserve is a State secret, but experts believe most of the exchange reserve is in dollars, Euros and Japanese yen. "Our government cannot reveal all of the specific numbers," said Tan.

  "We should make better use of our massive foreign reserves in an effort to get stable and higher returns," said Zhao. "On one hand, the central government should help domestic enterprises to invest overseas; on the other hand, our government should make more strategic investments abroad, such as financial aid."

  In a report released by Dagong Global Credit Rating last month, a domestic rating agency, US debt was rated AA, lower than the firm's top AAA rating. The company warned Washington that it might have trouble raising more money if it lets fiscal risks get out of control.

Source: Global Times


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