China boosts US Treasury holdings to $900bn

Amidst signs of increasing tensions over the yuan-dollar parity rate and other bilateral issues comes US data released 15 June reveals that China has boosted holdings of US Treasury notes and bonds by 2.6 per cent to $900.2 billion in March and April. The boost comes a year to after Beijing lashed out at US fiscal policy as ''irresponsible.'' The boost comes after a reduction in holdings by 6.5 per cent, from November through February, which was the longest consecutive monthly decline in a decade.

The news also follows hard on the heels of an announcement by the People's Bank of China that it will relax its 23-month lock on the yuan.

According to data, China's $22.7 billion in Treasury purchases during March and April added to a $205.2 billion increase in total foreign holdings.

The People's Bank of China keeps its currency artificially low against the US dollar by using its currency to purchase hundreds of billions of dollars and investing these in Treasury bonds.

The purchases in March and April have focused on long-term debt, unlike in 2008, when the demand was for Treasury bills. China boosted its holdings by 18 per cent over a 12-month period through this April. Holdings in notes and bonds due in two years, or more, surged 46 per cent.

For the US the added benefit of long-term purchase of notes and bonds lies in helping keep borrowing costs near record lows. This will aid companies and the public even as the US tries to recover its economic strength.