"China Bought More U.S. Securities Even Amid Concerns (Update1)
By Vincent Del Giudice
April 15 (Bloomberg) -- China, the U.S. government’s biggest creditor, increased its purchases of American securities in February just weeks before the country’s officials questioned whether such investments were safe.
While China’s purchases slowed and most were in short-term Treasury bills, the country remained the largest foreign holder of Treasuries after its holdings rose 0.6 percent to $744.2 billion, according to a monthly report released in Washington.
“It still comes down to holding the most valuable stuff,” said Richard Yamarone, chief economist at Argus Research in New York. “If you have a baseball card collection, and times get bad, you don’t sell the Honus Wagner or the Mickey Mantle rookie card,” he said, referring to two of the game’s biggest historical stars. “They have always been, and will always remain, the most desirable holdings.”
Still, the governor of the People’s Bank of China, Zhou Xiaochuan, last month urged the establishment of a “super- sovereign reserve currency” after Chinese Premier Wen Jiabao said he’s “worried” a weaker U.S. dollar may hurt China’s investment. The U.S. needs China to sustain its purchases to fund billions’ worth of programs aimed at reviving the economy, about 70 percent of which reflects consumer spending.
“If they are going to boost their economy by selling consumer goods to the U.S., accepting U.S. Treasuries is part of their bargain with the devil,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. U.S. Treasury bills, notes and bonds are considered the safest and most liquid, he said, and “February was a big safe- haven buying month given the stock market’s troubles.”
According to an analysis by Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York, today’s report shows “we are not seeing any wholesale dumping of dollar assets by China.”
In an interview, Thin said the smaller increase in holdings of Treasury securities reflects a slowdown in capital flows between investors in China and other emerging markets rather than deliberate efforts on the part of the Chinese authorities.
“China and the U.S. have a symbiotic relationship,” Thin said. “We need each other.”
Foreign direct investment into China fell for a sixth month from a year earlier. Investment dropped 9.5 percent to $8.4 billion in March, the Chinese commerce ministry said at a briefing in Beijing today. That marked the first time since 2000 that investment from abroad has fallen for six straight months, according to Bloomberg data.
Worldwide foreign direct investment fell 21 percent last year to $1.4 trillion because of the global recession and falling profits, according to estimates from the United Nations Conference on Trade and Development, and it’s likely to decline further this year, the agency said.
Phone calls and an e-mail message to China’s embassy in Washington were not returned by press time.
Separately today, U.S. Treasury Secretary Timothy Geithner refrained from labeling China as a currency manipulator, backtracking from an assertion he made during his confirmation hearings in January.
In its first semiannual report on foreign-exchange policies since Geithner became secretary, the Treasury said that while the yuan remains “undervalued,” no country “met the standards” for illegal currency manipulation during the period of the report, from July 2008 through December 2008.
The conclusion clashes with Geithner’s January 22 statement to a Senate panel that “President Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency.”