China should cut U.S. Treasury holdings: economist

BEIJING Sun Jul 18, 2010 9:24pm EDT

U.S. Treasury Secretary Timothy Geithner arrives to testify about the U.S. economic policy towards China during a hearing of the Senate Finance Committee on Capitol Hill in Washington June 10, 2010. REUTERS/Molly Skipper

U.S. Treasury Secretary Timothy Geithner arrives to testify about the U.S. economic policy towards China during a hearing of the Senate Finance Committee on Capitol Hill in Washington June 10, 2010.

Credit: Reuters/Molly Skipper

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BEIJING (Reuters) - China should cut its holdings of U.S. Treasury securities when market demand is strong, a prominent economist said in remarks published on Monday.

Beijing reduced its Treasury holdings in May by $32.5 billion to $867.7 billion, but it actually bought a net $3 billion in long-term Treasuries and remained the largest single holder of U.S. government debt, the Treasury reported on Friday.

Yu Yongding, a former academic adviser to the central bank and now a professor with the Chinese Academy of Social Sciences, said Beijing should invest in assets denominated in other currencies as well as other financial instruments and real goods.

"Although assets in other currencies and forms are not an ideal replacement for U.S. Treasury bonds, diversification should be a basic principle," Yu wrote in the China Securities Journal.

"When demand for U.S. Treasury securities is strong, it's a rare opportunity for us to gradually pull back. That way, it will not have a big impact on prices and China will not suffer too much," he said.

Zhang Monan, a researcher with the State Information Center, a think tank under the powerful National Development and Reform Commission, told the paper that China should invest more of its $2.5 trillion of foreign exchange reserves, the world's largest stockpile, in hard assets such as gold.

(Reporting by Langi Chiang and Alan Wheatley; Editing by Ken Wills)

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Comments (16)
doctorjay317 wrote:
There are no guarantees in life.

Any logical proposals will seem plausible.

When you have such gigantic reserves, there’s not many places you can go to.

Anyway, it’s just a pile of numbers.

Jul 18, 2010 10:02pm EDT  --  Report as abuse
yangguizi wrote:
China should cut back on US T-bills. It is about time the RMB raises value against the dollar. With demand for T-bills artificially high due to China’s attempts to keep the RMB at a lower value, US manufacturers have been suffering. If China sells off some of their T-bills at a reasonable pace, it will not effect the market too much, but this would be a necessary adjustment to rebalance economies.

China should then use some of that money to implement a nation-wide social securities program. This would reduce some Chinese domestic savings and improve their domestic demand for imports.

A continuation of the US borrowing and the Chinese selling cannot work. It will lead to another crisis in the future.

Jul 18, 2010 10:16pm EDT  --  Report as abuse
JuWan wrote:
yes, i think so.U.S. Treasury securities are garbage!

Jul 18, 2010 11:06pm EDT  --  Report as abuse
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