China largest holder of US Treasuries
Safe investment channel can protect yuan: experts
P R I C E 2 Y U A N
The Chinese mainland has again become the largest foreign holder of US Treasury securities, pushing Japan down to second place, according to data revealed by the US Department of the Treasury on Tuesday.
Experts told the Global Times on Wednesday that the situation is a result of improved capital flows and expectations of the yuan strengthening against the US dollar. They added that China might further pump up its holdings of US Treasuries if these trends persist.
The US Treasury data showed that in June, China bought $ 44.3 billion US Treasury securities, bringing its total holdings of US bonds, notes and bills to about $ 1.15 trillion in total.
The Chinese mainland has been increasing its holdings of US Treasuries for six consecutive months.
Japan, which replaced China as the US’ biggest Treasury securities holder last October, sold about $ 20 billion of Treasuries in June. Its current holdings of US Treasuries amount to about $ 1.09 trillion.
The US Treasury data also showed that Hong Kong is currently the ninth biggest holder of US Treasuries, with its holdings reaching approximately $ 203 billion.
Buying in dollars
Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times on Wednesday that China’s rising holdings of US Treasuries shows that the People’s Bank of China ( PBC), China’s central bank, has been buying foreign currencies.
The PBC invests foreign currencies in overseas assets instead of depositing them in banks and buying US Treasuries is the most common investment channel for central banks around the world, Zhou added.
E Zhihuan, chief economist at Bank of China ( Hong Kong), also told the Global Times on Wednesday that China’s recent moves to increase its holdings of US Treasuries is in line with the continuous rise of foreign reserves.
China’s foreign exchange reserves rose to $ 3.08 trillion in July after increasing for six straight months.
Zhou said that the PBC buys US dollars to help curb any depreciating trend in the yuan, as it can then sell dollars if the yuan is depreciating too much. The yuan has surged by about 4 percent in 2017, data from the PBC showed.
“Buying dollars is a good sign, given that the yuan had been bogged down in a depreciation cycle in recent years. But in the longer term, holding too much foreign currency reserves is not such a good thing as the yield from US Treasuries is not very high compared with other investment channels like stocks,” Zhou said.
E said that the rising yuan is a result of China’s economic data in 2017, which has been generally better than market expectations, and this has restored people’s confidence in the yuan.
“If China’s foreign reserves and the yuan’s exchange rate can remain stable, the Chinese government still has room to buy more US Treasuries in the future,” E noted.
Tan Yaling, head of the Beijing- based China Forex Investment Research Institute, said that China’s holdings of US Treasuries will be “periodical” subject to factors such as China’s internal economic structural adjustments and government policy.
Valuable asset
Tan said US Treasuries are still the best overseas asset channel for the PBC.
“US Treasuries have a stable interest rate between 2 and 5 percent. They are also safe, supported by the strong US economy and the prestigious US dollar. Liquidity of US Treasuries is also high, making this quite a flexible investment method,” Tan told the Global Times on Wednesday. The US had total GDP of $ 18.57 trillion in 2016.
Zhou also noted that individuals can invest foreign currencies in assets with greater yields as well as risks, but for central banks the liquidity and safety of their investment are more important.
He also noted that a weaker US dollar might cause the US Treasuries to shrink in value. “But we don’t need to worry about that now since the US government is raising interest rates.”
“But in the longer term, holding too much foreign currency reserves is not such a good thing as the yield from US Treasuries is not very high compared with other investment channels like stocks.” Zhou Yu Director of the Research Center of International Finance at the Shanghai Academy of Social Science