China's holdings of US Treasuries surge

China's holdings of US Treasury securities surged to their highest level in over a year in February, allowing the country to remain the largest holder of US debt while restoring "balance" to its Treasurys portfolio, an analyst said.

China purchased $9.16 billion in long-term securities during the month, raising its total portfolio of Treasuries to $1.22 trillion, from $1.16 trillion a year earlier, according to the Treasury Department's monthly international capital report. Overall global demand for Treasuries rose to $5.66 trillion from $5.11 trillion.

Perry Wong, research director at the Milken Institute, a Santa Monica, California-based economic think tank, says China's more aggressive buying of long-term securities is part of an effort to restore balance to a portfolio thrown out of balance by slower buying a year earlier.

"China's purchases of US securities should be viewed as part of the country's long-term portfolio management," Wong said. "When you look at that, you have to look at multi years," he said. "They pretty much manage it as part of the larger portfolio and as something they have to hold on to."

The results follow Monday's announcement by the National Bureau of Statistics that China's GDP grew at a 7.7 percent rate in the first quarter, less than forecast, but still above the 7.5 percent full-year target. The first-quarter GDP growth lagged the rate of the fourth quarter by 0.2 percentage point, rekindling worries about a global slowdown in growth and overbuilding in China's real estate market.

"I don't think 7.7 percent is an overwhelmingly disappointing number," Wong said. "Or a clear indication that the Chinese economy is in trouble. We shouldn't expect the Chinese economy to grow as robustly as we would wish for."

On the positive side, he said, slower growth "gives the economy time for resources allocation".

Wong cited President Xi Jinping's statements in recent years, as president and as vice-president, that he has no problem with China posting a growth rate below 8 percent. "The argument has been in the past couple of years that China should pay attention to quality growth, rather than numerical growth," Wong said. "From that perspective, 7.7 percent or 7.9 percent or 8 percent - those numbers don't really dictate too much on the long- term fundamentals of the Chinese economy. I rather think that economic growth in the 7 to 8 percent range is fine."

Last week, Xi sought to reassure an audience at the Boao Forum for Asia Annual Conference that China will grow far into the future, despite recent economic turbulence. He said the Chinese market has been supported by the country's modernization in agriculture and its rapid pace of industrialization and urbanization. "China's economy will go upward instead of downward for a long time," Xi said.

China's economy has grown by double digits over the past three decades, but GDP growth cooled last year to hit a 13-year low of 7.8 percent. Xi said China needs to improve the quality and efficiency of its economy as well as focus on developing its green and low-carbon industries to achieve economic sustainability.

The international capital report also comes on the heels of a report on Friday in which the US Treasury criticized China for resuming large-scale currency intervention to suppress the value of the yuan. The Treasury declined to name China a currency manipulator, a sensitive issue in diplomatic relations, in its semi-annual report on global exchange rates.

In the international capital report, the Treasury said the sum total in February of all net foreign acquisitions of long-term securities, short-term US securities and banking flows was a monthly net inflow of $53.6 billion. Of this, net foreign private inflows were $44.4 billion, and net foreign official inflows were $9.2 billion.

Foreign residents increased their holdings of long-term US securities during the month, making net purchases of $7.6 billion. Net purchases by private foreign investors were $9.1 billion, and net purchases by foreign official institutions were negative $1.5 billion. At the same time, US residents increased their holdings of long-term foreign securities, with net purchases of $25.4 billion.

Foreign residents increased their holdings of US Treasury bills by $14.0 billion.