China's US debt holdings dip lower, again

Updated: 2014-08-18 11:01

By Jack Freifelder in New York(China Daily USA)

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China cut its holdings of United States government debt in June for the fourth time in the last six months, which may reflect a continuing move away from US assets, according to an analyst.

"The story is pretty simple," said Nicholas Lardy, senior fellow at the Peterson Institute for International Economics in Washington, on Aug 15 in an interview with China Daily.

"China is no longer intervening in the foreign exchange market on a large scale, so its reserves are not rising so rapidly," Lardy said.

But he added that China's cache of US Treasuries has been "fairly stable in recent months".

China, the largest foreign holder of US Treasuries, held $1.268 trillion in US debt as of June, down $2.5 billion from the previous month and below the $1.27 trillion mark for the second time since August 2013, the US Treasury Department said on Aug 15 in a monthly report.

China's holdings of US debt hit an all-time high of $1.317 trillion last November.

Japan remained the second-largest US creditor in June, though its debt securities decreased $600 million to $1.219 trillion.

Foreign demand for US assets weakened as net foreign sales of long-term securities totaled $18.7 billion in June, compared to purchases of $19.4 billion in May, Treasury data showed.

The total of all foreign acquisitions of long-term securities, short-term securities and banking flows in June resulted in a net outflow of $153.5 billion, the Treasury said.

Wayne Morrison, a specialist in macroeconomic policy at the US Congressional Research Service (CRS), said China continues to see US Treasury securities "as a safe and secure investment" despite the slight downturn in its holdings.

"The interest payments for US Treasury securities are relatively low and thus the Chinese government may be searching for higher returns," Morrison wrote in an email to China Daily. "According to the Rhodium Group, Chinese FDI (foreign direct investment) in the US in 2013 for the first time was larger than US FDI in China."

Morrison also said that at the end of the day, this year's figure for China's holdings in the month of June is close to last year's total.

China's stock of US securities in June 2014, $1.268 trillion, decreased by $7.4 billion year-over-year, roughly equal to a dip of 0.6 percent.

After three straight months of US debt sell-offs between February and April, a brief uptick in China's holdings of US securities in May was promptly followed by another drop in June.

The last decline of China's Treasury holdings that exceeded three months came in the final five months of 2011, according to a June report by Bloomberg News.

Gennadiy Goldberg, a US strategist with TD Securities USA LLC, said US Treasuries saw strong outflows in June, rebounding sharply from "late-May lows".

"Country data showed net selling of $2.5 billion by China and $600 million in selling by Japan, even as both countries' holdings of coupons continued to increase during the month," Goldberg told China Daily.

"Most other national holders were better buyers, suggesting that foreign official demand for US Treasuries remained solid in June," Goldberg wrote. "In fact, China's purchases of notes and bonds rose $23.6 billion in June, bringing their year-to-date purchases to a record $131 billion."

(China Daily USA 08/18/2014 page1)