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China faces a dilemma' in US Treasuries
By Zhang Yuwei and Li Xiang (China Daily) 07-20

Beijing shouldn't stop buying bonds yet despite risk, analyst says

NEW YORK / BEIJING - China has "little choice" but to continue buying US Treasury bonds in the short term despite the potential risk of Washington defaulting on its obligations to foreign bondholders, analysts said on Tuesday.

China, the largest foreign holder of US Treasuries, increased its holdings by $7.3 billion to $1.16 trillion for the second straight month in May, according to the US Treasury Department.

The total foreign holdings of Treasury securities rose 0.6 percent to $4.5 trillion in May, the same month the US reached its $14.3 trillion debt ceiling the US government can legally borrow to finance its operations.

Since reaching the limit on May 16, the US Treasury has relied on accounting maneuvers to prevent a federal default. US Treasury Secretary Timothy Geithner said that if the debt ceiling was not raised by the Aug 2 deadline, the government would default on its obligations to its foreign bondholders.

"China faces a dilemma in its holding of the US T-bonds," said Dong Yuping, an economist with the Institute of Finance and Banking at the Chinese Academy of Social Sciences (CASS).

"Beijing has little choice but to continue to buy the US debt because Beijing wants a stable dollar. And the US Treasury bonds remain the most liquid investment product in the market, given China's huge foreign exchange reserves.

"But China has to come up with a backup plan of investing its foreign reserves as a long-term strategy because the trend of a weakening US dollar has become almost a certainty," he said.

China's foreign exchange reserves rose by a faster-than-expected 30.3 percent year-on-year by the end of June to reach $3.2 trillion. Analysts said that this indicated an increasing inflow of "hot money" after the latest interest rate hike by the People's Bank of China, the central bank, to contain inflation and asset bubbles.

Yao Wei, an economist for China at the French bank Societe Generale SA, said that China needs to speed up the pace of structural reforms to rebalance its economy to reduce external surpluses, internationalize the yuan, and diversify foreign exchange reserves.

"The key issue here is not what China should buy, but how China can slow down the pace of foreign exchange reserve accumulation to reduce the need to buy," Yao said. "China should seriously rethink the assumption of US Treasuries as a safe haven."

Last week, global ratings agencies, including Moody's Investors Service and Standard & Poor's, put the US triple-A credit rating on review for a possible downgrade.

The Chinese rating agency Dagong Global Ratings Co Ltd said it would consider knocking the US credit rating down another notch. Dagong downgraded it from AA to A+ in November after the US government announced a second round of quantitative easing.

However, some economists still believe that buying US government debt is "a low-risk option".

"The Treasury market is the largest and most liquid market in the world. There is no other market where large investment-grade risk positions can be transferred on such a narrow offer. It will remain so for the foreseeable future," said Chris Ahrens, an interest-rate strategist at UBS AG.

The May data of the Treasury International Capital report shows that foreign investors will still keep investing in US government debt, with Japan and the United Kingdom, the second- and third-largest holders of US Treasuries, also increasing their holdings.

　美国财政部18日公布的数据显示，今年5月中国增持73亿美元美国国债，这是中国连续两个月增持美国国债，目前仍是美国最大的债主数据显示。美国第二大债权国日本5月同样增持55亿美元，第三大债权国英国当月更增持135亿美元。
最近，标普、穆迪和惠誉等信用评级机构频频就美国债务问题发出警告。在美元贬值同时未来美国通胀上升的情况下，持有如此大额而且持续增持美国国债是否会面临越来越大的风险？

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关键词：follow LOW Quantitative accumulation Internation follow

There is no doubt that China needs to speed up the pace of structural reforms to rebalance its economy to reduce external surpluses, internationalize the yuan, and diversify foreign exchange reserves.

global ratings agencies, including Moody's Investors Service and Standard & Poor's, put the US triple-A credit rating on review for a possible downgrade.As a critical Aug. 2 deadline approached,if the debt ceiling was not raised , the US would default on its obligations to its foreign bondholders.China will be the biggest victim.Now,China needs to estimate the risks as the  treasury main investor.

"China needs to speed up the pace of structural reforms to rebalance its economy to reduce external surpluses, internationalize the yuan, and diversify foreign exchange reserves."many of us share the same view,but how??less answers...

some economists still believe that buying US government debt is "a low-risk option"

站着说话不腰疼啊

72,72

Societe Generale SA
法国兴业银行
notch  [nɔtʃ]   
n.刻痕, 等级, 切口
vt.赢得, 刻凹痕, 计分
knock down  [ˈnɔkdaun]
击倒，撞倒；杀(价)，降(价)；拆除

This article proposes that China has little choice but to continue to buy American debts. One reason is that China has huge foreign exchange surplus and needs to get a balance, and the other reasons include that China wants a stable dollar and US debt is still a relatively low-risk option. But the US dollar is depreciating, the debt ceiling raise is on the agenda and the debt ratings are expected to be downgraded. It is time for China to reconsider the constituents of the foreign exchange reserves and reduce the share of US dollars. And China have to find other ways to use the huge reserves, mostly because of the declining credit rate of US dollars.

It is really hard to solve, just as we should buy RMB bonds.

72，72
Though China has little choice , but it's time to rethink the assumption of US treasuriesas a safe heaven and come up with a backup plan of investing it's foreign reserves as a long term strategy .

I don't agree with the viewpoint in the bottom half of the sentence "Beijing has little choice but to continue to buy the US debt because Beijing wants a stable dollar."  The scale of  foreign exchange reserves continuously  increasing  is passive choice. What' worse,we never know what the rational scale is and the risk rises with a loose rein.

at first, i want to say china daily's writing style is easier for us to read and comprehend .     this article is also about china's dilemma in u.s. treasuries . it is a hot topic in this week . form the criticism,  we can know the following information : (1) beijing has little choice but to continue buying u.s.treasury bonds in short term . i think it has several reasons . first,  beijing wants a stable dollar . so it will continue buying to raise the market faith on dollar to avoid depreciation . second, the u.s.treasury market is the largest and most liquid market in the world . china has an enormous mount of foreign exchange . other markets can't satisfy its great demand . third,  other countries are still keeping buying such as,  Japan and Britain. (2) china should seriously rethink its foreign exchange policies . first the weakness of dollar has become a certainly . assumption of dollar is a safe heaven becomes unreal . global ratings agencies mostly give negative evaluation on u.s. treasuries . second,    china should slow down the pace of foreign exchange reserve accumulation and balance its foreign exchange reverse . the hot money inflow and inflation in china must be taken consideration .          (3) though treasury bonds face default, but in a short term, it is still a welcome and strong money in the world .we can foresee it because several biggest economic entities are still buying and there is any other money which can replace dollar in short term .  to sum, china face a no other choice but to be bound with dollar .