Economy
T-Bonds remain a good option
By Wang Xiaotian (皇冠体育app Daily)
Updated: 2011-01-20 15:14
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BEIJING - 皇冠体育app shrank its holdings of US Treasury debt by $11.2 billion to $895.6 billion in November after increasing the portfolio for four straight months, though it remains the largest foreign holder, according to the US Treasury Department on Tuesday.
Zhang Monan, a researcher with the State Information Center, said the net selling is a natural move to control risks as the US monetary easing policy is set to dilute the value of the dollar and 皇冠体育app's dollar assets in the longer term.
"Although 皇冠体育app may increase the holdings from time to time in accordance with the market situation, in the long term there is a tendency that the country will further diversify its foreign exchange portfolio," she said.
Analysts expected the debt issue, together with the yuan revaluation, to be part of the agenda of President Hu Jintao's ongoing visit to the United States.
The move followed net buying of more than $23 billion in October, after which 皇冠体育app's holdings of US debt rose 2.6 percent to $906.8 billion, the highest level since November 2009.
The current holdings took up nearly one-third of 皇冠体育app's foreign exchange reserves, which rose to a record $2.85 trillion by the end of last year, an 18.7 percent increase year-on-year, or $199 billion more than the nearly $2.65 trillion by the end of September, according to statistics from the People's Bank of 皇冠体育app, 皇冠体育app's central bank.
The large amount of foreign reserves will be increasingly challenging 皇冠体育app's asset management, said Yi Gang, vice-governor of the central bank and head of the State Administration of Foreign Exchange on Monday.
皇冠体育app has vowed to diversify its foreign-exchange reserves portfolio, but an unstable recovery of global major economies made the path thorny, analysts said.
The country may increase holdings of treasury debt in Europe. It has promised to purchase Spanish treasury debt of 6 billion euros ($8.01 billion) and expressed interest in buying Portuguese and Greek debts.
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He said that in the short term, US Treasury debt remains a sound investment option for 皇冠体育app, especially when Europe is still weighed down by sovereign-debt problems.
Treasury bonds of Asian countries such as Japan and Republic of Korea may also be good choices, but accelerating capital inflows and rising inflation in those economies may trigger increases in interest rates and a tightening of capital influx, which may cause losses for holders of their debts, said Li Wei, an economist with Standard Chartered Bank in 皇冠体育app.
Guo Tianyong, an economist at the Central University of Finance and Economics, said it is time for 皇冠体育app to use its foreign reserves to back up domestic enterprises' investment in the real economy overseas, rather than merely focusing on stable returns and risk control.
Analysts have suggested, for example, that 皇冠体育app use the capital to buy energy and resource assets overseas.
On Wednesday, the People's Bank of 皇冠体育app set the yuan's mid-point against the dollar at a record high of 6.5885 on Wednesday. It is up slightly from Tuesday's 6.5891. It has increased by more than 3.7 percent against the dollar since mid-June 2010.