Chinese whispers in treasury mart
As China’s current account surplus cooled last year, did its ardour for US Treasurys?
That is the headline story from the latest data on foreign ownership of US Government debt. Mainland China’s holding fell to $755.4 billion at the end of December from a peak of $801.5 billion last May. The country also shifted into longer-dated Treasurys. Japan is, on paper, again the largest foreign holder of US government debt.
Behind those bare facts, however, the picture gets murkier. in fact, it isn’t clear that China is shifting out of Treasurys at all, while firm conclusions over its preference for short or long term US debt are hard to reach.
How so? The key is to look at US Treasury holdings in the UK and Hong Kong. Both have at least doubled in the past year. At the end of December, the UK holdings totalled $302.5 billion, and Hong Kong’s were $152.9 billion. In the Treasury International Capital data analysts suspect a large portion of the holdings from those places – perhaps as much as half – in fact originate in China. The problem arises because Treasurys are often held on behalf of clients in financial centres like Hong Kong or London. For the data compliers it is hard to unearth the ultimate owners of the debt.
Wall Street Journal – 18 Feb 2010