Chinese Mainland, the Second Biggest Holder of US T-Bonds
Last updated at: (Beijing Time) Friday, August 09, 2002
The Chinese mainland has become the second biggest holder of
US T-bonds, ranking before the United Kingdom and after Japan,
according to statistics released by the US Department of Treasury
on July 31.
By the end of May 2002, the balance of overseas US T-bonds
reached US$1032.8 billion, (of which US$618.4 billion was held by
foreign governments), accounting for around 30 percent of the
total US$3433.8 billion in the same period, of which Japan held
US$321 billion, Chinese mainland US$80.9 billion, (plus Hong
Kong's US$42 billion and Taiwan's US$32.9 billion added up to a
total of US$155.8 billion), and Britain US$ 51.4 billion. In fact, the
Chinese mainland had become the second largest US
T-bond-holder at the end of 2000.
Political Risks
By the end of June 2002, the Chinese mainland held a foreign
exchange reserve around US$242.76 billion and folk foreign
exchange savings deposits over US$85.54 billion, most of which
were put in the US markets of T-bond, institution bond and
corporate bond. Fortunately, to avoid risks, such a huge
investment was scattered on financial markets of the United
States, Euro area and Japan instead of being put into one basket,
with only one-fourth of the total used to buy 80.9 billion worth of US
T-bonds.
Along with the development of the Chinese economy and foreign
trade and increase in the inflow of capital, the reserve and
deposits of foreign exchange would also increase, such a growth
rate has been quickened especially in the process of a lowered
exchange rate of the US dollar. The resultant question is that the
inevitably larger scale of US T-bonds held by China means the
involvement of higher political and sovereign risks.
The 56-page report on China's military strengths at present in the
next 20 years, released by the Pentagon on July 12, repeated the
same old tune about "China Threat", while the ensuing report
published by the US-China Security Review Committee,
established with the authorization of US Congress, bluntly
asserted that China threatened the United States economically
and in security.
The Cold War mentality of US right-wing forces is unfavorable to
the healthy development of Sino-US relations. In case the two
countries suddenly became foes due to the Taiwan question or
other issues, China might face economic sanction and blockade
imposed by the United States, then, the huge amount of US
T-bond assets China holds may face the political risk of being
frozen. The 80.9 billion US T-bond, likened to a piece of soft ribs,
is equivalent to two-fifths of China's financial revenue in 2001, so
China has to guard against this financial risk.
An Weapon
However, some persons, including US right-wingers, hold that
China's possession of huge amounts of US T-bonds constitutes a
potential threat to the US economy, for instance, it threatens the
stability of the exchange rate of the US dollar and financial
markets, just like the Soros- managed hedge fund, impcting the
exchange rate of pound sterling, therefore US T-bond serves as a
weapon for China.
It should be said that these worries and illusions are groundless.
For example, Japan holds the world's most foreign exchange
reserve, but still cannot influence the exchange rate of the US
dollar and helplessly looked on the sharp fluctuations of the yen.
Furthermore, China's investment in the US bond market, entirely
different from that of the hedge fund, is steady, medium- and
long-term investment. Why can't the United States accommodate
China's high-credit investment if it can tolerate the existence and
development of the hedge fund?
Olive Branch
In fact, China's purchase of US T-bonds serves as an olive branch
of Sino-US relations, for it greatly supports US economic
development, balance of international payments and stability of the
exchange rate of the US dollar. As everybody knows, the United
States is a country with an accumulation of huge fiscal deficits, its
government bonds standing as high as US$3400 billion. China's
purchase of US bonds has supported the latter's fiscal policy.
What's more, the United States has heavy current account deficit,
which needs huge inflow of capital, including that from China, to
balance its international payment. It is the inflow of China's foreign
exchange that contributes to US exchange rate stability. In fact,
during the devaluation of the US dollar, China still steadily
purchased a certain amount of American T-bonds.
However, judged from an economic point of view, there is no
permanent friend but eternal benefit. For China, purchasing the US
T-bond is normal international investment conforming to the
economic law, for no one would risk such a big deal without
expected steady profits brought by the easy-trading T-bond.
Nevertheless, it is an eternal principle to strengthen caution
against political and sovereign risks involved in international
financial investments.
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