Business / China top US Treasurys holder

Economists urge selling US Treasuries

By Ding Qingfen and Li Xiang (chinadaily.com.cn) Updated: 2011-03-19 15:24

BEIJING – China faces high risks in holding a large amount of US Treasury bonds and should be cautious about further purchases, said economists home and abroad.

"China has to consider the safety of the huge amount of the US Treasuries it owns, it will do good to the nation if China could reduce it," said Yu Yongding, a former adviser to the Chinese central bank, during the China Development Forum 2011 held in Beijing.

China holds foreign exchange reserves worth $2.8 trillion, among which $1.15 trillion is used for buying into US Treasuries. "It's really a huge figure," said Yu.

"We could possibly buy much less than now when China wants to change the US Treasury bonds into commodities someday, thanks to the rising price of the commodities and decreasing price of the US bonds. Selling of the bonds will bring benefits to China," he added.

After the US debt reached a peak of nearly $1.18 trillion in October 2010, China, the biggest foreign holder of US Treasuries, reduced its holdings of the US Treasury for three consecutive months ending January.

The nation reduced its portfolio by $5.4 billion to $1.15 trillion in January, according to data released by the US Treasury Department on Wednesday.

"China faces a real problem because the likelihood of experiencing capital loss in the dollar is very high," said Joseph Stiglitz, a Nobel Prize laureate, who was also at the forum.

But Stiglitz said China has to "balance out the benefits that it gets from a lower and competitive exchange rate."

The US has been demanding that China allow its currency to rise, believing China had undervalued its currency to help Chinese exporters stay competitive.

"China's holding of the US bonds wins a lot of complaints and pressures (on currency), rather than appreciation, so why stick to doing that?" Yu said.