Beijing reduces holdings of US debt by US$5.4 billion in January: data

By Gao Changxin, China Daily/Asia News Network

SHANGHAI — China trimmed its holdings of U.S. debt in January, a move that underlines Beijing’s strategy to diversify its foreign reserve portfolio to avoid risks, analysts said. China, the biggest foreign holder of U.S. Treasuries, reduced its portfolio by US$5.4 billion to US$1.15 trillion in January, according to latest data released by the U.S. Treasury Department. It’s the third straight month of net selling after China’s holdings of U.S. debt reached a peak of nearly US$1.18 trillion in October 2010. The reduction comes after other foreign investors purchased a total of US$46.5 billion Treasury notes and bonds in January, according to the data. In isolation, the US$5.4 billion cut in China’s holdings doesn’t appear large, but when China’s ever-growing foreign exchange reserves are taken into consideration the move translates as a sharp decline in the proportion of U.S. debt in China’s foreign exchange investment portfolio, said Lu Zhengwei, chief economist at Industrial Bank. The holdings of US$1.15 trillion accounted for about 40 percent of China’s total of US$2.85 trillion in foreign exchange reserves by the end of 2010, the highest figure worldwide. Yu Yongding, a former adviser to the Chinese central bank, told Bloomberg last week that the U.S. may reach its congressionally-mandated debt limit of US$14.3 trillion in a few months, which could lead to a default. Yu was quoted as saying that China should stop buying U.S. Treasuries because the “cost” of lending to a nation that may face a default on its debt is too high.