China increases holdings of US securities

After three straight months of US debt sell-offs, China increased its holdings of US securities in May, data from the Treasury department showed.

The Treasury International Capital report released on Wednesday showed that China acquired $7.7 billion in US securities, up 0.6 percent compared to April, bringing the country's total to $1.27 trillion. It marked the first time China had purchased US securities since January. It previously had purchased a record amount of holdings in November, and has shed securities almost every month since then.

Japan remains the US' second-largest purchaser of debt, adding an additional $10.4 billion, bringing its new total to $1.22 trillion.

Foreign countries were net purchasers of long-term US securities, buying $19.4 billion. In April, they were net sellers, reducing their securities by $24.2 billion. The total of all foreign acquisitions of long-term securities, short-term securities, and banking flows in May was a net inflow of $35.5 billion, Treasury said.

Brazil, where Chinese President Xi Jinping is attending the sixth BRICS summit, picked up $4.3 billion in reserves, a much larger sum than in previous months. Brazil now has $250.1 billion in US securities, the largest amount since its $252.9 billion total in August of last year.

Cheng Chen, US rates strategist at TD Securities, said that China's debt activity falls in line with the investment bank's expectations and that the amount China purchased and the total amount it currently has on reserve is within "normal" range.

Wayne Morrison, specialist in macroeconomic policy at the US Congressional Research Service who has written about China's US securities holdings, said that China's total holdings are "still below their historic highs, so this is not a big deal per se".

The Treasury's data mirrors activity shown in the People's Bank of China's recent release on China foreign exchange reserve accumulation, which reflects activity from the second quarter ending in June, said Kent Troutman, research analyst with the Washington-based Peterson Institute for International Economics.

China's reserves increased about $50 billion and with trade balance bouncing back and an increase in FDI, appreciation pressure is rising. "From the rise in the foreign currency reserves and the rise in holdings, we can surmise that the People's Bank of China (PBoC) has been intervening in the FX market, albeit at lower levels than previous years," he said.

"Overall, the [foreign exchange] numbers were a disappointment to many who thought that, after months of claiming that the recent weakness in the RMB was market-driven - and several data points seemingly corroborating that - the PBoC had indeed ceased its intervention," said Troutman. "The recent data seems to fly in the face that sanguine view."

At the end of the second quarter, China's foreign exchange reserves totaled $3.99 trillion, up from the $3.948 trillion recorded at the end of the first quarter.

During last week's two-day Strategic and Economic Dialogue held in China, US Treasury Secretary Jack Lew pressed China to strengthen the value of the renminbi. Zhou Xiaochuan, governor of the PBoC, said that the bank will gradually reduce intervention as "conditions permit".

amyhe@chinadailyusa.com