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Treasury Dept: China’s US govt debt holdings hit 2010 high

June 16, 2010

By Agence France-Presse, Updated: 6/15/2010

China’s holdings of US debt climbed to the highest level this year, the US Treasury said Tuesday even as Beijing stepped up attacks on the United States for its burgeoning debt.

The cash-rich Chinese government raised its US Treasury bond holdings to 900.2 billion dollars in April, its highest level since November 2009, while posting the second consecutive monthly rise, according to a report on international capital flows.

China remained far ahead as the top foreign debt holder, followed by Japan, which held 795.5 billion dollars in April, and third-placed Britain at 239.3 billion dollars, according to the figures.

The monthly gain in April and the previous month came after six straight months in which China appeared to reduce its Treasury holdings, or keep them flat.

While that triggered concerns Beijing was diversifying away from US bonds, some analysts said Beijing was secretly buying bonds via third countries to mask its importance as a creditor — a role which had attracted considerable scrutiny.

Globally there has been an influx of investments in recent months into US Treasury bonds — a channel used by the government to borrow from the public to finance its burgeoning deficit — amid the mounting European debt crisis.

The crisis, which sent the euro to four-year lows, also deterred China and several other countries with massive foreign reserves from diversifying away from US bonds and other long-term US securities, analysts said.

“Threats of reserve diversification over the last two years by China and Russia have ended since the breakout of the European sovereign debt crisis and the euro’s (sharp) decline against the US dollar,” said analyst Michael Woolfolk of Bank of New York Mellon.

The data Tuesday indicated that China remains “a steadfast buyer” of Treasuries, averaging 10.3 billion dollars per month in 2009 and 8.2 billion dollars per month for the first four months of 2010, he said.

China, the world’s largest holder of foreign-exchange reserves, has been constantly criticizing Washington for its snowballing debt levels, fearing that Beijing’s investment in US government bonds could turn sour if a debt crisis overwhelms America.

Analysts cited the latest criticism from the Chinese national pension fund chief last week, saying it had also helped the euro recover against the greenback, including on Tuesday.

“The Euro was bought up quite aggressively on comments from the head of the Chinese pension Fund that the euro will survive the crisis and that he was more concerned about their US debt holdings,” said Tony Darvall of Easy Forex.

The latest Treasury data showed that net foreign purchases of US securities rose in April but at a slower pace than record-setting March levels.

Net long-term foreign purchases fell to 83 billion dollars from 140.5 billion dollars in March.

“Despite falling from their record-high March level, net long-term capital inflows to the United States remained solid,” said Gregory Daco, US economist at IHS Global Insight.

“Foreign investors’ confidence in the US recovery was illustrated by the increased holdings of all three largest foreign holders of US Treasuries: China, Japan, and the UK,” he said.

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