China Slices U.S. Debt Holdings Amid Currency Row

April 15, 2010
At $877.5 billion, it's the lowest level in nine months

China has cut its massive U.S. Treasury bond holdings to the lowest level in at least nine months, data showed on April 15 as Beijing resisted persistent U.S. pressure to revalue its currency.

Beijing sliced its holdings to $877.5 billion in February, down $11.5 billion from January, but remained the top holder of American government debt, according to the Treasury Department's latest figures on international capital flows.

It was the fourth consecutive monthly drop in Chinese holdings and marked the lowest level since June last year, when China held $915.8 billion in bonds.

But China remained far ahead as the top Treasury bond holder, followed by Japan, which held $768.5 billion in February, and third-placed Britain at $231.7 billion.

Overall, net foreign demand for U.S. long-term securities amounted to $62.1 billion in the first two months of 2010, Treasury data showed.

Beijing's action came as the United States continued to push China to readjust its currency, charging that it was keeping the yuan undervalued to gain a trade advantage over its competitors. U.S. lawmakers have threatened sanctions against China, saying the allegedly undervalued yuan had resulted in a ballooning U.S. trade deficit and a loss of American jobs.

President Barack Obama this week pushed Chinese leader Hu Jintao to act on the prickly issue, on the sidelines of a nuclear security summit in Washington. Hu however delinked the yuan's value from the U.S. trade deficit or the nearly 10% unemployment rate gripping the United States.

Chinese officials said Beijing would not take any action on a "sovereign" issue based on foreign pressure.

China posted its first trade deficit in six years in March, prompting Beijing to claim that the nation's exchange rate did not play a decisive role in global economic imbalances.

The Asian giant's foreign-exchange reserves, the world's largest, also rose by a slower pace to $2.447 trillion at the end of March -- gaining by $47.9 billion in the first quarter compared with a jump of $127 billion in the previous three months.

Some experts believe China may be secretly buying bonds via third locations to hide its importance as a major creditor to Washington. China-linked entities may be scooping up U.S. bonds in London, Hong Kong or other locations, pointing out that official data almost certainly understates Beijing's U.S. government debt holdings, they told a recent congressional meeting.

Even if China is trimming U.S. bond holdings, economists say it will not have a major impact on the United States because other buyers were stepping up to the plate.

It "should be viewed as part of the rebalancing process and certainly no cause for alarm," said Tu Packard, a senior economist at Moody's "Any reduction in Chinese holdings is easily and readily offset by other buyers who are feeling more confident about the U.S. recovery gaining traction," she said, noting that February marked the ninth consecutive month of positive net foreign purchases of long-term U.S. securities.

Copyright Agence France-Presse, 2010

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