Global Times - China increases US bonds holdings by $24.1b in July

China increases US bonds holdings by $24.1b in July

Source: Global Times
[13:56 September 17 2009]
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According to a report released Wednesday by the US Department of Treasury called Treasury International Capital, or TIC, China increased its holdings of US bonds by $24.1 billion in July after it sold $25.1 billion worth of bonds in June.

Until the end of July, China held $800.5 billion in US bonds, still topping the list as the largest US bond holder in the world.

The central bank's flip-flop of selling holdings in June and then buying them back in July confused many people, and academics were divided on the government's actions.

Some scholars insisted that purchasing US bonds is a good option for China although the value of the US dollar was questioned after the outbreak of the financial crisis.

While a growing number of experts believe China should increase its reserves of natural resources like gold and oil since there are concerns about the value of dollar assets.

"The US is likely to continue or even strengthen its economic stimulus policy, but pushed by the continuous investment in stimulus packages, there are concerns the US could go further into debt and result on the dollar weakening further," said an analyst from Citic Securities.

It is the dropping value of the US dollar that has China worried. According to the TIC report, in July, China's net purchase of US bonds was 15.259 billion yuan, while the net purchase of bonds from other countries was worth 845 million yuan. As for US agency bonds, corporate bonds, and corporate stocks, China sold them off in July as well.

Meanwhile, America's financial deficit makes the prospects of the US bonds pessimistic. The financial deficit expanded further at the start of the financial crisis, so issuing additional treasury bonds has become the only way for the government to finance itself, but the problem is that demand cannot meet supply.

Zhang Ming, an analyst from the Chinese Academy of Social Sciences pointed out that typically, the US government sells 60 percent of its treasury bonds, split evenly between domestic and foreign buyers.

But affected by shrinking exports, dropping oil prices and lower disposable income, both foreign and domestic investors are likely to cut their US bond holdings.

Japan became the second-largest holder by increasing its share by $12.7 billion to a total of $724.5 billion by the end of July, while the UK remained as the third-largest holder of US bonds.