China’s US hold­ings reach all time high

China Daily (Canada) - - ACROSS AMERICA - By JACK FREIFELDER in New York jack­freifelder@chi­nadai­lyusa. com

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.

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.” KENT TROUT­MAN A RE­SEARCH AN­A­LYST AT PIIE

“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 on Thurs­day in an e-mail 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 longert­erm struc­tural change,” Trout­man added. “2013 shows that sta­bil­ity is still king.”

For­eign de­mand for US as­sets weak­ened as net for­eign pur­chases of longterm 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 e-mail 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 on Thurs­day morn­ing.

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