Fri, Jan 12, 2018 - Page 10 News List

China denies halt of US bond purchases

POLITICAL PING-PONG:Analysts have speculated that China’s move could be a veiled threat to the US president over his tough talk on global trade and protectionist stance


China yesterday denied a report that it might slow or cease its purchases of US Treasury bonds, calling it a possible case of “fake news” after the US dollar tumbled following the story.

Bloomberg News on Wednesday reported that officials reviewing China’s foreign-exchange holdings had recommended slowing or halting purchases of US Treasuries, citing people familiar with the matter.

“We think this story could be quoting a mistaken source or it could also be a piece of fake news,” the Chinese State Administration of Foreign Exchange (SAFE) said on its Web site.

Beijing is the biggest holder of US debt and the news was seen by some as a veiled threat to US President Donald Trump following his tough talk on global trade and, in particular, what he sees as China’s unfair practices.

“The management of investments in China’s foreign-exchange reserves has always been carried out according to the principle of diversification and distribution,” SAFE said in its statement. “As with other investments, professional management of China’s foreign-reserves investment in American bonds is professionally managed according to market activity, on the basis of market conditions and investment needs.”

The US greenback sank against most of its peers following the news on fears that a huge amount of foreign demand for US dollars would dry up.

The bond market reacted negatively before recovering through the day and ending slightly up.

“US Treasuries are often used during the political Ping-Pong match when trade tensions escalate,” said Stephen Innes, who heads Asia-Pacific trading at foreign-exchange firm OANDA Corp.

“It’s entirely possible that China could take measure to rebalance their reserve as they have done in the past,” Innes said.

However, markets quickly realized “it’s highly improbable China will stop buying US Treasuries,” he said.

The world’s second-largest economy has long invested heavily in US bonds as a way of controlling the value of its own currency the yuan.

Bloomberg News estimates that China holds about US$1.2 trillion in US debt, an amount that has doubled over the past 10 years.

That puts it neck-in-neck with Japan as the US’ largest creditor.

Beijing’s massive US debt holdings are a bugbear for some US politicians, who claim they give China too much leverage over Washington.

However, any attempts to use that power could hurt the US dollar, damaging China’s own US holdings.

“In practice, the People’s Bank [of China] has fewer choices over the size or allocation of its foreign-exchange purchases than is sometimes assumed,” Capital Economics Ltd said in a research note. “If the PBOC [People’s Bank of China] were to precipitate a large sell-off by retreating from the US Treasury market, the value of its existing reserves would fall.”

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