China keeps buying US bonds despite concerns

WASHINGTON (AFP) - China is pumping more money into US Treasury bonds, recent data show, despite concerns expressed in Beijing in recent months over the safety of dollar-linked assets.
Mainland China’s holding of Treasury securities jumped to 767.9 billion dollars in March from 744.2 billion dollars the previous month, according to US Treasury data.
The figure does not include those of Hong Kong, China’s special admin region, which climbed to $78.9b from $76.3b.
The statistics showed China sitting comfortably as the top purchaser of Treasury bonds despite years trying to diversify its reserves from the US dollar.
Chinese Premier Wen Jiabao had expressed rare official concern in March over the safety of Beijing’s huge US bond holdings but in the same month, according to monthly US Treasury data, Beijing scooped up 23.7 billion dollars of Treasuries, the largest inflow since November.
“This flies in the face of the ‘China is diversifying’ stories,” said Andrew Busch, analyst at BMO Capital Markets, commenting on the fresh Treasury data.
Wen’s concerns came amid frustration in Beijing that the nearly 800 billion dollar huge US stimulus measures to prop up the world’s largest economy could drive down the value of dollar-based assets.
In addition, China was concerned that a US Federal Reserve move to buy up to 300 billion dollars in long-term US Treasury bonds to ease credit flows could dampen returns on its future bond purchases.
“As much as China is whining about the impact of quantitative easing on the US dollar, their purchases of dollar denominated assets was the strongest since November,” said Kathy Lien, director of currency research at Global Forex Trading.
Being the top holder of US Treasury bonds, China is automatically the largest creditor to the United States.
It is also the world’s biggest holder of dollar reserves, at nearly two trillion dollars — roughly double that of Japan, and four times more than either Russia or Saudi Arabia.