China increases US debt holdings

Updated: 2013-11-19 07:48

By AMY HE in New York (China Daily USA )

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China increased its holdings of US Treasury securities in September, the most since May, as the world's second-biggest economy and Japan remain the biggest buyers of US portfolio assets, according to the US Treasury Department.

Figures released on Monday showed that after shedding US debt in August and hitting a six-month low at $1.28 trillion of holdings, China picked up $25.7 billion in September, remaining the largest foreign holder of US debt at $1.29 trillion.

Japan was the second-largest holder with $1.18 trillion, acquiring $29 billion in September, more than double the $13.7 billion purchased in August.

Foreign investors were net buyers of US long-term securities in September, which resulted in an inflow of $25.5 billion, according to a statement from the Treasury. That was a reversal of August's activity, when foreign investors were net sellers of a revised $9.8 billion in holdings.

The Treasury Department reports on cross-border investment activity every month and gives holdings of US Treasuries by country. The report released on Monday reflected activity from September when the Federal Reserved decided against tapering, keeping quantitative easing at $85 billion and continuing to buy US Treasuries and mortgage-backed bonds. The Fed said in a statement that it will wait for "more evidence that progress will be sustained" before lowering its purchases. Economists have said that at their meeting in March next year, the Fed will most likely begin tapering.

Though China added to its holdings, experts said the month-to-month change is not reflective of any US decisions.

"[China's accumulation of reserves has] been on a slow path up, it tends to bounce around month-to-month, but there's been no appreciable change in the long run," said Nicholas Borst, research associate at the Peterson Institute for International Economics.

From 2007 to 2011, China was accumulating reserves at a rate of over $400 billion a year, Borst said, but that dropped dramatically in 2012 after the economy slowed. Its activity in 2013 "has basically been a bit of a return back to the previous trend," he added.

The increasing accumulation comes as the Chinese economy is strengthening after "a weak bout," and capital from other emerging economies moves back into China, Borst said.

"I think China mostly buys and sells Treasuries according to their own internal needs to keep the currency in line with the long-term goals that they've set," Borst said. "I don't think Chinese authorities tend to react to day-to-day news."

The September purchases came before the US government's 16-day shutdown in October, during which the House and Senate passed legislation to keep the government open until Jan 15, and allowed the Treasury to continue borrowing money until Feb 7.

In the midst of the shutdown, Chinese Deputy Finance Minister Zhu Guangyao expressed concern over the possibility of a US default and urged a solution to protect Chinese investments. Despite China's criticism during the shutdown, Borst predicted that the country's holdings will remain steady in the coming months.

"I think the Chinese were pretty confident that there was going to be no major US default. They set these exchange rate policies with long-time horizons and they don't - outside of the most extreme circumstances - tend to alter them, even on a month-to-month basis," he said.

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