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China sells $34.2bn of US Treasury bonds
China relinquished its position as the largest overseas holder of US treasury bonds by selling $34.2bn (£21.7bn) worth of the securities in December, according to new treasury figures.
The move means that Japan, which boosted its purchases, is once again in the top spot. China's sale contributed to a record drop in foreign holdings of short-term bills: in all, net overseas holdings of bills fell by $53bn; the previous record was $44.5bn in April last year.
But overall, the US saw a net inflow of $60.9bn as investors bought longer-term securities.
Analysts are divided on the significance of the Chinese shift. Some see it as a typical switch back to riskier assets as confidence in the economy grows, while others believe it reflects serious concerns about the US deficit projected to reach a record $1.56tn this year.
The sales also come amid friction over issues including the value of the yuan, which the US argues is far too low.
But some observers argue that the figures do not accurately reflect Chinese holdings. Not only could China be buying other dollar assets, but it could be buying Treasuries through funds, they pointed out.
Alan Meltzer, an economics professor at Carnegie Mellon University, told the Associated Press that China's shift should be a wake-up call for Washington.
"The Chinese are worried that we have unsustainable debt levels, and we do not have a policy for dealing with it," he said.
Last year, Chinese premier Wen Jiabao told reporters: "We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried."
China's December sales still left it with $755.4bn of Treasuries. Its huge holdings reflect the trade deficit between China and the US. US assets are thought to make up over two-thirds of its estimated $2tn foreign reserves.
Others said that figures are often volatile month-to-month and that Europe's debt crisis has put pressure on the euro and boosted demand for dollar assets.
"China may not be too happy with us right now, but you have to ask, what else are they going to do with their money?" said David Wyss, chief economist at Standard & Poor's in New York.
Japan added $11.5bn to its holdings, taking the total to $768.8bn overtaking China for the first time since August 2008. Britain, Luxembourg and Hong Kong also made sizable purchases with the UK buying $24.9bn of US government debt.
Michael Pettis, professor of finance at Peking University, warned that the Treasury figures gave only a "very impressionistic" record of Chinese holdings and that it was unclear what Beijing was buying with the money recouped.
One possibility was that it was selling to invest in funds which then bought Treasuries.
"You can sell what's in your name and have Merrill Lynch buy some for you. The net effect is that ownership hasn't changed," he added.
"The US is running a current account deficit; China has an account surplus. Directly or indirectly the two are going to meet up."
If that was the case, it could be simply an attempt to diversify or an attempt to send a warning to Washington to get a grip on its finances.
Ho-fung Hung, author of China and the Transformation of Global Capitalism, said it was hard to tell whether China had a long-term strategy for selling US debt.
"I think decision makers know very well that any large-scale selling of US Treasuries won't do any good to the Chinese economy, which still needs a sustained recovery of the US economy to pull up its export sector. Such selling will also devalue China's existing holdings of Treasuries," he said.
"Dumping Treasuries will also entail the problem of what to buy in return definitely not euro or yen assets at the moment."
China sells $34.2bn of US Treasury bonds | Business | guardian.co.uk
China relinquished its position as the largest overseas holder of US treasury bonds by selling $34.2bn (£21.7bn) worth of the securities in December, according to new treasury figures.
The move means that Japan, which boosted its purchases, is once again in the top spot. China's sale contributed to a record drop in foreign holdings of short-term bills: in all, net overseas holdings of bills fell by $53bn; the previous record was $44.5bn in April last year.
But overall, the US saw a net inflow of $60.9bn as investors bought longer-term securities.
Analysts are divided on the significance of the Chinese shift. Some see it as a typical switch back to riskier assets as confidence in the economy grows, while others believe it reflects serious concerns about the US deficit projected to reach a record $1.56tn this year.
The sales also come amid friction over issues including the value of the yuan, which the US argues is far too low.
But some observers argue that the figures do not accurately reflect Chinese holdings. Not only could China be buying other dollar assets, but it could be buying Treasuries through funds, they pointed out.
Alan Meltzer, an economics professor at Carnegie Mellon University, told the Associated Press that China's shift should be a wake-up call for Washington.
"The Chinese are worried that we have unsustainable debt levels, and we do not have a policy for dealing with it," he said.
Last year, Chinese premier Wen Jiabao told reporters: "We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried."
China's December sales still left it with $755.4bn of Treasuries. Its huge holdings reflect the trade deficit between China and the US. US assets are thought to make up over two-thirds of its estimated $2tn foreign reserves.
Others said that figures are often volatile month-to-month and that Europe's debt crisis has put pressure on the euro and boosted demand for dollar assets.
"China may not be too happy with us right now, but you have to ask, what else are they going to do with their money?" said David Wyss, chief economist at Standard & Poor's in New York.
Japan added $11.5bn to its holdings, taking the total to $768.8bn overtaking China for the first time since August 2008. Britain, Luxembourg and Hong Kong also made sizable purchases with the UK buying $24.9bn of US government debt.
Michael Pettis, professor of finance at Peking University, warned that the Treasury figures gave only a "very impressionistic" record of Chinese holdings and that it was unclear what Beijing was buying with the money recouped.
One possibility was that it was selling to invest in funds which then bought Treasuries.
"You can sell what's in your name and have Merrill Lynch buy some for you. The net effect is that ownership hasn't changed," he added.
"The US is running a current account deficit; China has an account surplus. Directly or indirectly the two are going to meet up."
If that was the case, it could be simply an attempt to diversify or an attempt to send a warning to Washington to get a grip on its finances.
Ho-fung Hung, author of China and the Transformation of Global Capitalism, said it was hard to tell whether China had a long-term strategy for selling US debt.
"I think decision makers know very well that any large-scale selling of US Treasuries won't do any good to the Chinese economy, which still needs a sustained recovery of the US economy to pull up its export sector. Such selling will also devalue China's existing holdings of Treasuries," he said.
"Dumping Treasuries will also entail the problem of what to buy in return definitely not euro or yen assets at the moment."
China sells $34.2bn of US Treasury bonds | Business | guardian.co.uk
