China's US debt holdings reach record high

Updated: 2014-01-17 09:20

By JACK FREIFELDER in New York (China Daily USA)

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China's total holdings of US government debt in November reached a record $1.317 trillion, a development that could mean added pressure to help currency appreciation in the world's second-largest economy, according to analysts.

China increased its US Treasury securities by $12.2 billion from October to remain the US's largest creditor, staying above the $1.3 trillion mark for the second consecutive month, according to data released on Thursday by the Treasury Department. Japan remained the second-largest US creditor in November, increasing its debt securities by $12 billion to $1.186 billion.

Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics (PIIE), said the increase in China's holdings "have been rising" for more than a decade.

"China's holdings of US government debt have been rising steadily since 2002, so this is a continuation of a long-term trend," Lardy said Thursday in an email to China Daily. "This simply shows that the government is increasing its massive intervention in foreign exchange markets, and holding down the value of its currency."

Kent Troutman, a research analyst who also works with the PIIE, sees the data to be "entirely in line" with expectations.

"Overall, purchases of US assets are entirely in line with what one would expect given the rapid increase in headline reserves," Troutman said. "2013, especially the back half of the year, was one of remarkable foreign reserve accumulation. The main takeaway from this statistic for me is that pressure to appreciate remains very strong."

"Policymakers in China are still grappling with how to balance the need for shorter domestic economic stability with the need - or necessity - for longer-term structural change," Troutman added. "2013 shows that stability is still king."

Foreign demand for US assets weakened as net foreign purchases of long-term securities totaled $29.3 billion in November, compared to purchases of $35.4 billion in October, the data showed.

According to a Jan 15 blog post written by Troutman on China Economic Watch - the PIIE blog that monitors China's economy - the People's Bank of China announced that its foreign-exchange reserves jumped $157 billion in the fourth quarter, bringing the total increase in reserves to $508 billion for 2013.

"This marked pickup in reserve accumulation, coupled with persistent trading of the renminbi at the top of its official trading range and a premium on the offshore Chinese yuan, suggests that pressure to appreciate could continue into 2014," wrote Troutman.

He told China Daily that demand for Chinese exports and high returns on foreign capital in the country have increased and are the two main sources of pressure to appreciate the Chinese currency.

"These two trends don't show signs of reversing in 2014, and should thus provide continued appreciation pressure," Troutman said Thursday in an email to China Daily. "If these global cyclical trends continue in 2014 and the PBoC continues to resist this appreciation, then we will continue to see large reserve accumulations."

He said there are three main considerations that a central bank charged with fiduciary duty over public funds has:safety, liquidity and return. "Unfortunately for China, the US is really the only market that can satisfy the first two concerns adequately at the magnitudes which China requires."

Bloomberg News reported on Jan 15 that a Treasury spokeswoman said an error caused the inadvertent posting of limited amounts of the securities data on the Treasury department's website ahead of the official release time onThursday morning.