SAFE pushes diverse foreign exchange buys

09:01, July 14, 2010      

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China, the world's largest foreign exchange holder, bought €400 million ($505 million) of Spanish treasury bonds last week, reported Tuesday, in an effort to diversify holdings.

The State Administration of Foreign Exchange (SAFE), took up around 7 percent of the Spanish 10-year treasury bonds, which are valued at €6 billion ($7.54 billion).

Of the €6 billion raised, two-thirds were bought by out-of-Spain investors, of which 14 percent was purchased by Asian countries.

"China is helping the European market and is giving a big vote of confidence to the eurozone by making the purchase," He Liping, dean of the Finance Department with Bejing Normal University, told the Global Times.

SAFE was not available for immediate comment Tuesday.

China's foreign reserves jumped $453 billion, or nearly a quarter, to $2.4 trillion last year amid the global financial crisis, according to the People's Bank of China, the country's central bank.

China cut its US Treasury bond holdings to $889 billion at the end of January this year from $894.8 billion the previous month, and down from a revised $929 billion in November, according to figures released by the US Treasury Department.

"The purchase of Eurozone treasury bonds and the cut back on the US ones can reduce investment risks of China's foreign reserves," Guo Tianyong, professor of banking with the Central University of Finance and Economics, told the Global Times.

Guo believes SAFE will invest in the yen, the pound sterling, and the Australian and Canadian dollars in order to diversify risks.

Earlier reports have challenged SAFE's management of the country's huge foreign reserves after the yuan revaluation.

"We had avoided big losses and are confident in achieving good, stable returns in the long term," SAFE fired back.

The Chinesegovernment encourages State-owned enterprises to buy gold and foreign resources, such as natural gas and crude oil, a move to stabilize the economy and meet the surging demand of the world's major economy.

Though the US is expected to borrow more than $1 trillion again this year, China's massive holdings in US Treasuries have set off alarms in some circles in Washington, warning that the US debt was becoming a political as well as an economic risk.

"The US treasury bonds are backed by US national credit and China hopes the US will take practical measures to reassure its investors, which benefits not only the debtors, but the US itself," said Chinese Premier Wen Jiabao in March.

Source: Global Times


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