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China purchasing more US Treasury securities

By  Li Qiaoyi (Global Times)

08:24, February 17, 2013

China continued to boost its stake in US government debt in the last month of 2012 despite concurrently mounting finger-pointing over the US "fiscal cliff," the US Department of the Treasury revealed over the weekend.

China increased its holdings of US Treasury securities by $19.7 billion in December, the third consecutive month of net purchase, according to the latest figures from the Treasury Department Friday.

After the purchase, China remains the biggest foreign creditor of the US, with its holdings of US government debt hitting $1.2 trillion. Japan, the second biggest holder, bought $2.5 billion worth of US Treasury securities in December, raising its total holdings of US debt to $1.12 trillion.

Economists generally speak positively about China's continued purchase of US debt, although outcry remains strong on Weibo against the country's over-reliance on US debt.

"China's monthly net purchase is hardly steep, and is in line with the country's increase in international capital flows," said Sheng Hongqing, Beijing-based chief macroeconomic analyst with China Everbright Bank.

"US Treasury securities remain one of the safest assets in the world," said Sheng. "US dollar denominated bonds are still largely preferable to bonds denominated in euros or yen."

Although the absolute yield of US government debt is at a low level, Sheng expects synthetic exchange rates of the US dollar against the euro and yen to remain strong, since the US' economic outlook is stronger than that for Europe and Japan in the foreseeable future.

Chang Jian, China economist at Barclays Capital Hong Kong, also remains confident about investing in US debt.

"We still have such a huge foreign exchange reserve stash, and holding US treasury bonds is actually a good choice compared to many other alternatives in terms of both safety and profitability," Chang told the Global Times Saturday.

By the end of 2012, China's foreign exchange reserves totaled $3.31 trillion, continuing to be the world's largest.

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