China-US relations

China holdings of US government bonds rise to seven-year high

Figures come after reports that Chinese officials are considering buying other assets, amid rising trade tensions between China and the US

PUBLISHED : Friday, 16 February, 2018, 10:03am
UPDATED : Friday, 16 February, 2018, 10:03am

China increased its holdings of US Treasuries last year by the most since 2010 in a signal its demand for American bonds remains resilient.

The value of China’s holdings of US bonds, notes and bills rose by US$126.5 billion to US$1.18 trillion in December from a year earlier, according to Treasury Department data released on Thursday in Washington. China remains the largest non-US holder of debt followed by Japan, whose holdings fell for the fifth straight month in December to US$1.06 trillion after ending 2016 at US$1.09 trillion.

China’s Treasury holdings are coming under extra scrutiny after a signal earlier this year that America’s largest creditor may be easing bond-buying amid rising trade tensions.

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Chinese officials said last month that as part of a foreign-exchange review, the government is considering slowing or halting purchases of US Treasuries as they became less attractive relative to other assets. A pullback could complicate plans by the US to ramp up borrowing to finance widening budget deficits and efforts by the Federal Reserve to limit market turbulence from gradually unwinding its balance sheet.

Threats by President Donald Trump to crack down on trade with China have sparked concerns that the Asian nation could use US Treasuries as a tool for retaliation.

China’s foreign-exchange holdings clocked a 12th straight monthly increase in January, climbing to US$3.16 trillion, lifted by a strong yuan and the use of capital controls to help stabilise outflows. The yuan has extended its gains by 2.6 per cent against the dollar since the start of this year after posting its first annual gain in four years in 2017.

Belgium’s ownership of Treasuries, often seen as a home to China’s custodial accounts, was little changed at US$119.2 billion in December from a year earlier.

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Net foreign purchases of US equities totalled US$35.1 billion in December, up from US$12.6 billion a month earlier. The data cover last year’s stock market rally, which extended into January before market volatility fuelled by inflation worries in February wiped out some of those gains.

Total net sales of corporate bonds were US$1.25 billion, compared with US$28.7 billion in purchases a month earlier.