Statistics from US Department of the Treasury showed China and
Japan sold US treasuries this August at a pace unprecedented in the
last five years, as the US subprime mortgage crisis triggered the
biggest sell-off of dollar assets since Russia's 1998 default.
According to the US Department of the Treasury, following a net
capital influx of US$19.5 billion, US saw net sales of US$69.3
billion worth in treasuries during August alone, the highest
sell-off recorded since October 2000.
China cut its holdings of US treasuries by 2.2 percent or US$9
billion to US$400 billion, while Japan dumped four percent of its
total holdings to US$586 billion, the most since March 2000. The
Chinese Taiwan's ownership of US government bonds fell sharply by
8.9 percent to US$52 billion.
According to latest statistics, US$400 billion of US treasuries
only account for 28 percent of China's US$1.43 trillion foreign
reserves now, a sharp contrast to years ago when most of China's
foreign reserves found their way to US treasuries. Analysts
attributed the loss of demand for US financial assets to the low
exchange rate caused by subprime mortgage fallout, and the Federal
Reserve's decision to lower the interest rate by 50 basic points.
The dollar has devalued by some seven percent this year against the
euro. Suspicions that the Federal Reserve would cut the interest
rate again further contributed to pressure for China and other
countries to reduce holdings of US assets.
In order to spend the new reserves and bolster higher returns on
investments, China set up a US$200 billion fund known as China
Investment Corp on September 29. China hasn't decided to allocate
new reserves to the fund yet; whether the fund will be given more
responsibility depends on its future performance, said fund
chairman Lou Jiwei.
The State Administration of Foreign Exchange said in a
conference that foreign exchange management departments should
adopt comprehensive measures to promote a basic balance in
international payments. These measures include: first, striving to
meet enterprise and individual demand for foreign reserves; second,
promoting convertibility of capital accounts and boosting two-way
cross-border capital flows; third, reforming the RMB exchange rate
formation mechanism and accelerating the development of the foreign
exchange market; fourth, regulating foreign capital inflow and
foreign exchange management, preventing illegal capital inflow and
short-term overseas speculation to ensure the national financial
security.
(Chinadaily.com.cn October 18, 2007)
