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China added to its holdings of US Treasuries by $7.6 billion in April, $7.3 billion in May and another $5.7 billion in June, totaling $1.17 trillion as of the end of June. It is suspected that there are no better places for China to put such a large amount of money. In contrast, Japan and Britain has more to do with their own domestic situation rather than the actual value of the bonds, having reduced or slightly increased their holdings of US Treasuries respectively.
China has been closely watched for its investments in dollar assets, with the analysis that America’s fundamentals in the long term remain strong while its economy has been overshadowed by the rating downgrade.
The absolute amount of China’s holdings in US bonds is increasing, but divided by the mounting foreign exchange reserves which surged to $31.5 billion in July, the proportion is estimated to be dropping slowly.
It is important to achieve a trade balance in the long run, while in the short term, it is necessary to be more creative and diversify the investment fields of foreign reserves. Gold, euro-denominated assets and debt of emerging markets are good alternatives. Gold is regarded the first choice as its share in China’s foreign exchange reserves is significantly lower than other countries. And it is also recommended that helping failing US businesses through acquisitions and purchases, in sectors not so sensitive as related to US national security, should work.
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