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US debt rise not a sign of new strategy

By Zhu Ping (China Daily)
Updated: 2009-11-19 08:00

Despite worries about the value of its foreign assets, China increased its holdings in United States Treasury securities in September by $1.8 billion.

The increase bumps the nation's Treasury holdings to $798.9 billion from $797.1 billion in August. The latest monthly figures in the Treasury International Capital (TIC) report for September, released on Tuesday, indicates that China remains the world's largest holder of Treasury bonds.

Meanwhile, US economists estimated China holds roughly $1.5 trillion in US assets, at least 65 percent of China's total foreign assets, according to the US Council on Foreign Relations, a nonprofit and nonpartisan organization.

In contrast with China's small increase of US debt in September, the Treasury report showed foreigners bought $133.5 billion in US bonds in September, the most since October of last year.

Net foreign purchases of long-term securities were $40.7 billion in September from a revised $34.2 billion in the prior month, but foreign holdings of dollar-denominated short-term US securities decreased $11.8 billion.

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For September, Japan's holdings of US Treasury securities rose $20.3 billion to $751.5 billion.

Other countries with large holdings of US Treasury securities also increased their holdings in September with the UK's investment rising to $249.3 billion from $226.9 billion. The Treasury holdings of Brazil rose to $144.9 billion, from $137.3 billion in August.

But the China's slow growth in US securities in September does not necessarily mean China is on the way to reduce its US securities despite strong domestic doubts on the large holding of US debts, analysts told China Daily.

"The $1.8 billion is small compared with China's huge holdings of US debt," said Zhao Xijun, a professor of finance at Renmin University of China. "It's very normal whether China increases or decreases the US bonds, because the buying and selling is fluctuating every month."

Increases in US holdings from other countries did not mean they were optimistic about the US recovery as some American economists said recently, according to Zhao.

"It's just a result of different investment strategies taken by different countries," he said.

Although he suggested China should diversify its portfolio of foreign assets, the country has few choices.

Li Wei, an analyst at Standard Chartered Bank, said: "The TIC report sometimes cannot reflect the true figure since China often buys the US debt via agents in London." That part is put under the name of the UK, Li said.

The real figure of China's holding of US securities may be $970 billion, according to Standard Chartered Bank.

Given the fact that China bears the brunt of the dollar's weakness, it's unfair to criticize the renminbi's exchange rate, said Yao Yang, a professor of economics at Peking University.

"The US has argued that the Chinese currency is undervalued by as much as 40 percent against the dollar, but in fact it is at most 5 or 6 percent," Yao said.