China Shuns Treasurys as it Seeks Other Assets

Tuesday, 18 Dec 2012 08:46 AM

By Dan Weil

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China has stopped buying Treasurys, as it diversifies its foreign-exchange investments.

Actually, that’s not completely accurate. While the amount of China’s Treasury holdings varies from month to month, it’s down sharply from its peak.

China owned $1.16 trillion of Treasurys as of October, down 12 percent from a record high of $1.31 trillion in July 2011.

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

If China and Japan continue their 2012 buying patterns, the latter would overtake the former as the biggest foreign holder of Treasurys in February, according to Bloomberg.

So why is China pulling back?

“It isn't for lack of cash,” writes The Wall Street Journal’s Spencer Jakab.

“China still has plenty to recycle and a burning need to invest its roughly $3.3 trillion in foreign-currency reserves. Instead, it is likely prudent diversification.”

China has been on a corporate buying spree of late, including a $15 billion bid for Canadian oil and gas producer Nexen.

And the nation is likely concerned about the U.S. government debt explosion. “In all likelihood, this trend of using dollars to buy hard assets will accelerate in coming years,” Jakab writes.

Overall, foreign investors bought the lowest amount of U.S. securities in at least three years during October. “[That] is testimony to how policymakers have dampened demand for the dollar,” Alan Ruskin, head of G10 foreign exchange strategy at Deutsche Bank, tells Reuters.

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

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