China may cut U.S. debt holdings on weak dollar
Reuters, 08.11.03, 6:44 AM ET
BEIJING, Aug 11 (Reuters) - China may opt to reduce its holdings of U.S. treasuries and other debt in response to the weakening dollar and invest a higher proportion of its foreign exchange reserves in the euro and yen, analysts said on Monday.
"To be frank, there may be considerations for an adjustment in the asset structure if the dollar weakens further," said Zhao Xijun, deputy head of the Finance and Securities Institute at People's University. "Why can't we buy more assets denominated in euro and yen?"
China invests the bulk its foreign exchange reserves, which have hit $346.5 billion, in dollar assets, but the government has never published details of its holdings.
The weak dollar could dilute the value of China's foreign exchange reserves invested in U.S. treasuries and other debt, measured by currencies such as the euro or yen.
"On the other hand, if the United States continues to groundlessly demand a renminbi revaluation, China may raise the possibility of such considerations," Zhao said.
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THREATS
But analysts say Beijing was unlikely to counter U.S. criticism with threats.
"The Chinese may not be happy with U.S. pressure, but I don't believe they would go as far as to make threats such as reconsidering buying of Treasuries," said a senior U.S. forex dealer based in Shanghai, who declined to be identified.
The yuan, also called the renminbi, is virtually pegged in a tight range around 8.278 to the dollar, drawing criticism from U.S. and other foreign officials that the policy gives China an unfair trade advantage by making its exports cheaper.
A report by geopolitical advisory group Medley Global Advisers quoted Chinese officials as saying they had not sold any U.S. paper and had continued buying those securities, sources in New York quoted the report as saying.
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Through May, Japan and China were the two largest holders of U.S. treasuries, with $428.6 billion and $121.7 billion respectively, according to Treasury data. ($1=8.277 yuan)
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