For third straight month, China cuts US debt holdings

Updated: 2014-06-17 10:57

By Jack Freifelder in New York (China Daily USA)

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China cut its holdings of United States government debt in April for the third straight month, which may reflect a continuing move from US assets, according to an analyst.

China, the largest foreign holder of US Treasuries, held $1.26 trillion in US debt as of April, down $8.9 billion from the previous month and below the $1.27 trillion mark for the first time since August 2013, the US Treasury Department said Monday in a monthly report. China's holdings hit a high of $1.317 trillion in November.

Kent Troutman, a research analyst at the Washington-based Peterson Institute for International Economics (PIIE), said the decreases each month could be due to benign shifts in the portfolio.

"April is the first month where there is a larger decrease, but it is still small. What is worth noting, however, is that, even if China's holdings of US Treasuries are flat, its share of overall foreign exchange reserves is declining," Troutman wrote Monday in an email to China Daily.

"What we've seen in the past four months, if we accept that the data accurately reflects China's true holdings of US assets, is the continuation of a shift that began in 2010 of diversifying their portfolio away from US assets," he said.

Japan remained the second-largest US creditor in April, increasing its debt securities by $9.5 billion to $1.21 trillion.

Foreign demand for US assets strengthened as net foreign purchases of long-term securities totaled $24.2 billion in April, compared to purchases of $4 billion in March, the data showed.

The Treasury's monthly release of its Treasury International Capital (TIC) data details foreign ownership of US securities. For transactions and banking data, there is a 1.5 month lag between the release and the as-of date.

Marc Chandler, Global Head of Markets Strategy at Brown Brothers Harriman & Co, a New York-based investment bank and securities firm, said that though there are limits on the accuracy of TIC data, it still provides an "authoritative source" on the domestic and foreign holdings of US securities.

"Some people want to initiate policy based on the TIC data, and maybe you don't want to bet the farm on it," Chandler said on Monday in an interview with China Daily. "There are definitely limits on the framework and methodology, but it's the best source we have."

Chandler, who also serves as a contributing writer for Seeking Alpha, a leading online investment research platform, said he does not put too much stock in April's "minor" decline in China's holdings of US securities because there's not enough information to contextualize the drop.

"It is interesting to note that China is still the world's largest holder of Treasury bonds," he said. "And despite the lowered Chinese holdings, it did not prevent the US bond market from continuing to rally."

"Right now, Chinese banks are some of the biggest in the world, so maybe they'd want to move away from relying on foreign banks for their commercial transactions," Chandler said.

The last decline of China's Treasury holdings that exceeded three months came in the final five months of 2011, according to a June 16 report by Bloomberg News.

Gennadiy Goldberg, a US strategist with TD Securities USA LLC, said: "On a month-to-month basis, it's very difficult to really get any kind of value out of the numbers themselves. There will be months when China buys $30 billion in treasuries and there will be periods when it really continues to gradually shed. As we get further into liberalization of the currency, as they allow the yuan to strengthen further, it will be very interesting to see what happens."