The financial media have been full of proclamations recently that China, the biggest holder of U.S. Treasuries, will soon cut back its purchases of our government bonds.
Don’t hold your breath.
The country may actually increase its Treasury holdings should the dollar stay stable, Dai Xianglong, chairman of China’s national pension fund, writes in China Finance magazine.
"It is still possible for China to increase its investment in U.S. treasuries at appropriate times," says Dai, former head of China’s central bank.
He says it’s inaccurate to "simply describe the current situation of China's foreign-exchange reserve management as one of falling into a dollar trap."
Seventy percent of China's $1.95 trillion in foreign exchange reserves consist of dollar assets.
Last week Dai said China has little choice but to keep purchasing Treasuries.
The latest Treasury Department data show that China acquired $36.1 billion of Treasuries this year through April, lifting its total to $763.5 billion.
Meanwhile, the United States has said it will issue even more debt next week, a record-setting $104 billion, in order to finance the country’s financial rescue.
While Chinese officials, including Premier Wen Jiabao, have threatened to curb their Treasuries buying, doing so wouldn’t be easy.
“Because of the sheer size of its reserves … (China) will immediately disrupt any other market it tries to shift into in a big way and could also collapse the value of its existing reserves if it sold too many dollars,” a western official who requested anonymity told the Financial Times.
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