China Continues to Increase Holdings of US Dept

According to data from the the United States Treasury Department, in March China continued to increase its holding of American debt by 23.7 billion dollars, to reach a total of 767.9 billion. America’s immense foreign dept has caused president Obama to publicly announce that the US will no longer be able to borrow money from China.

A Chinese specialist believes that “increased support of American national debt is like trying to pick a not-so-rotten apple out of a pile of rotten apples”.

According to a report on the 17th by L’Agence France-Presse, it was noted that despite the fact that the continuous weakening of the US dollar is decreasing the value of debt holders’ wealth, China and Japan continue to increase their quantity. An article on the 16th by the Associated Press also noted that in March the amount of US stocks, securities and national debt bought by foreign countries rose to 55.8 billion USD, whereas in February the number was only 22 billion.

L’Agence France-Presse also pointed out that the 23.7 billion dollars worth of American debt that China took on in March was the greatest amount that was added in a single month since November of last year. China is not only the largest holder of American debt, but also the largest holder of American reserves; holding approximately double that of Japan and quadrupling Russia and Saudi Arabia.

Barclays investment bank analyst Milani said, “In the first quarter of 2009, Chinese holdings of American dept rose by 40 billion dollars, and foreign exchange reserves also increased by 7 billion dollars, which illustrates that China is still in favor of American national dept.” There are several analysts who believe that China relies on American bonds as a mutually beneficial tactical relationship. For China, American bonds act as a type of security investment; as the US relies on Chinese capital to supply capital. But these analysts worry that this type of relationship will hinder the pace of the readjustment of the current imbalance of the global economy. This type of imbalance is primarily created by the intensification of American trade deficit and the continuous growth of Chinese surplus.

Specialists from the American think tank Council on Foreign Relations, Brad Setser and Arpana Pandey, said “”The longer the United States relies on Chinese financing to avoid necessary adjustment – one where it pays for its imports with exports rather than debt – the harder the transition is likely to be.”

Faced with the United States’ continuous practice of borrowing huge sums of money from foreign nations, on the 14th Obama once again publicly noted in a speech that “we can’t keep on just borrowing from China or borrowing from other countries. We have to pay interest on that debt and that means that we’re mortgaging our children’s future with more and more debt.”

Dr. Hu of China’s Academy of Social Sciences Financial Research Institute, while being interviewed by a reporter from Global Times, indicated that based on the current situation it is possible that China reduced holdings in other forms of capital in order to increase holdings of US debt. He said that the end of the present financial crisis is still unforeseeable and a broad scan of the state of other main global markets, such as Europe and Japan, indicates that they are quite possibly worse off than America. Buying gold or other forms of capital must also be opportunely considered.

“It is like trying to pick a not-so-rotten apple out of a pile of rotten apples. At a time where there are no better choices American debt becomes the next-to-optimum choice.” Dr. Hu expressed that even though China is still increasing holdings in American debt, there will still be the some structural reforms: for instance, an increase in short term bond holdings with a reduction in the quantity of long term bonds.

[Editor’s note: some quotes may be worded based on translated material].