China: 'We will not halt US bond purchases'

Bloomberg News reported Wednesday that officials reviewing China's foreign exchange holdings had recommended slowing or halting purchases of US Treasuries, with the greenback tumbling as a result.

However on Thursday, China's State Administration of Foreign Exchange (SAFE) said the report was wrong. "We think this story could be quoting a mistaken source or it could also be a piece of fake news."

Beijing is the biggest holder of US debt and the Bloomberg report was seen by some as a veiled threat to US President Donald Trump following his tough talk on global trade and China's "unfair trade practices."

SAFE officials noted that "the handling of China's foreign reserves investment in US bonds is professionally managed according to market activity, on the basis of market conditions and investment needs."

Yuan stability in focus

The world's second-largest economy has long invested heavily in US bonds as a way of controlling the value of its own currency, the yuan. Estimates say China currently holds around $1.2 trillion (€1.0 trillion) in US debt, an amount that has doubled over the past 10 years.

Beijing's massive US debt holdings are a bugbear for some US politicians, who claim they give China too much leverage over Washington.

But in practice, the People's Bank of China has fewer choices over the size of its foreign exchange purchases than is assumed by many, says research company Capital Economics.

"If the PBOC were to precipitate a large sell-off by retreating from the US Treasury market, the value of its existing reserve would fall."

hg/aos (AFP, Reuters)