China cuts holdings of US debt

Analysts said that the reduction of its holdings of US debt indicated that China has adjusted its foreign-exchange investment portfolio after the US credit rating was downgraded by Standard & Poor's in August.

"It is a normal market-based operation by the Chinese government. It has to do with the volatile market conditions after the downgrade of the US credit rating," said Guo Tianyong, director of the China Banking Research Center at the Central University of Finance and Economics.

China currently holds $1.137 trillion of US Treasury debt, meaning that the country is still the largest foreign owner of US debt, according to data released by the US Treasury Department on Tuesday. The August reduction was the first time that China had trimmed its US debt holdings in five months after a net purchase of more than $8 billion in July.

Some analysts said that the sell-off does not necessarily mean that China has lost faith in the US dollar. Instead, they said Beijing may want to allocate more assets to US corporate bonds, which offer more stable returns.

Analysts were also unsure as to whether US Treasury data, known as TIC data (Treasury International Capital System), will reveal an accurate picture of China's holdings of US debt.