China increased US treasury bonds holdings by 37.3 billion dollars this March, once again becoming the biggest creditor of the US, a report recently released by the US Treasury Department shows.

After reducing holdings of US treasury bonds for six months in a row, China has begun to increase its holdings once more. By the end of March, major foreign creditors held a total of 6.18 trillion dollars of US treasury bonds, of which China held about 1.26 trillion dollars.

What are the motivations behind China's increases and reductions in its US bond holdings? According to some analyses, when the price was rising, China sold some middle and short term bonds at a profit. An official of the State Administration of Foreign Exchange said that buying and selling are both normal investment decisions made according to the market situation.

Zhang Huanbo, associate fellow of China Center for International Economic Exchange, told People's Daily that every move made by China in the international financial market is a reflection of its economic situation and the need of optimizing foreign exchange assets at the time. "The increase in holdings was mostly decided by the recent foreign capital inflow, the improvement of foreign trade and the optimistic perspectives on the middle and long term economic growth of the US," Zhang said.

According to Zhang, China's foreign reserve structure has improved in recent years: it is transforming from single dominant dollar assets to multi-currency assets. Along with the internationalization of the RMB and the increase in China's outgoing foreign direct investment, more and more overseas block trades are settled in RMB. As the rest of the world becomes less dependent on US dollar, multi-currency asset reserves will become a long-term trend.

A research report released by Citigroup on May 15 points out that considering that China has taken a larger share in global merchandise trade than the US, China is actively promoting the opening of both internal and external capital markets, and RMB is very hopeful of being included in SDR (Special Drawing Rights) basket. Private investors and foreign authorities have grown more and more interested in the RMB.

Analysts say as RMB will become the foreign exchange reserve of other countries in the future, the share of the US treasury bonds in China’s foreign reserves will be reduced accordingly.