China has cut its massive US Treasury bond holdings to the lowest level in at least nine months, data showed Thursday as Beijing resisted persistent US pressure to revalue its currency.
Beijing sliced its holdings to 877.5 billion dollars in February, down 11.5 billion dollars from January, but remained the top holder of American government debt, according to the Treasury Department’s latest figures on international capital flows.
It was the fourth consecutive monthly drop in Chinese holdings and marked the lowest level since June last year, when China held 915.8 billion dollars in bonds.
But China remained far ahead as the top Treasury bond holder, followed by Japan, which held 768.5 billion dollars in February, and third-placed Britain at 231.7 billion dollars, according to the figures.
Beijing’s action came as the United States continued to push China to readjust its currency, charging that it was keeping the yuan undervalued to gain a trade advantage over its competitors.
US lawmakers, facing election-year pressure, have threatened sanctions against China, saying the allegedly undervalued yuan had resulted in a ballooning US trade deficit and a loss of American jobs.
President Barack Obama this week pushed Chinese leader Hu Jintao to act on the prickly issue, on the sidelines of a nuclear security summit in Washington.
Hu however delinked the yuan’s value from the US trade deficit or the nearly 10 percent unemployment rate gripping the United States.
Chinese officials said Beijing would not take any action on a “sovereign” issue based on foreign pressure.
China’s selling of US bonds “are in line with its growing trade tensions with the United States, its first trade deficit in years and its slowing reserve growth,” said Kathy Lien, currency research director with Global Forex Trading.
China posted its first trade deficit in six years in March, prompting Beijing to claim that the nation’s exchange rate did not play a decisive role in global economic imbalances.
The Asian giant’s foreign-exchange reserves, the world?s largest, also rose by a slower pace to 2.447 trillion dollars at the end of March — gaining by 47.9 billion dollars in the first quarter compared with a jump of 127 billion dollars in the previous three months.
Some experts believe China may be secretly buying bonds via third locations to hide its importance as a major creditor to Washington.
China-linked entities may be scooping up US bonds in London, Hong Kong or other locations, pointing out that official data almost certainly understates Beijing’s US government debt holdings, they told a recent congressional meeting.
Even if China is trimming US bond holdings, economists say it will not have a major impact on the United States because other buyers were stepping up to the plate.
It “should be viewed as part of the rebalancing process and certainly no cause for alarm,” said Tu Packard, a senior economist at Moody’s Economy.com.
“Any reduction in Chinese holdings is easily and readily offset by other buyers who are feeling more confident about the US recovery gaining traction,” she said, noting that February marked the ninth consecutive month of positive net foreign purchases of long-term US securities.
“It is a clear indicator that financial markets have stabilized and are returning to normal.”
Overall, net foreign demand for US long-term securities amounted to 62.1 billion dollars in the first two months of 2010, Treasury data showed.
“This is not as robust as it has been in the past, but still reasonable and not a concern for funding the US current account deficit or the US dollar,” said Brian Bethune, chief US financial economist with IHS Global Insight. pp/vs
April 18th, 2010 at 10:02 am
Another new article with valid points, I have been a lurker right here for a while but hope to become a lot more involved soon.