China divests $36.5 billion of US bonds after S&P's downgrade

China, the largest foreign holder of the US Treasuries, divested its holdings by $36.5 billion, or 3.1 per cent, in August, its biggest sell-off of dollar assets since 2000, the US Treasury Department said.

The move reflected concerns after the US was stripped of its AAA credit rating by Standard & Poor's. The last time China sold huge amount of US debt was in June 2009, when it divested $25.1 billion of Treasuries.

China's holding of US treasury bonds, which was at $900 billion in April 2010, has risen to over $1.5 trillion in August 2011.

China is still the largest foreign owner of US debt, currently holding $1.137 trillion of US Treasury debt. The August sell-off was the first time that China had trimmed its US debt holdings in five months after it purchased more than $8 billion in July.

China's reduction of US debt holdings in August came even though other major foreign investors boosted their holdings in the same month amid the ballooning European debt crisis.
The UK and Switzerland increased their holdings by almost $40 billion each, while Japan increased it by $21.8 billion to $936.8 billion.

But offloading huge amount of US Treasuries is tricky for China, since the greenback lost its value in 2009 after Beijing sold $25.1 billion of US Treasuries. The dollar performance against a basket of currencies tumbled to 75 points at the end of 2009 from 85 in the first few months of the year, thus eroding the value of dollar-denominated assets of China along with other countries.