BEIJING, Aug 20 (Reuters) - China has no choice but to increase its holdings of U.S. government debt for now, an official newspaper said on Thursday, adding that diversifying the nation’s foreign exchange holdings would be a painstaking shift.
The editorial in the overseas edition of the People’s Daily, the ruling Communist Party’s chief newspaper, said a drop in China’s holdings of U.S. Treasuries in June showed that “China is seeking to diversify its foreign exchange (holdings)”.
China owned $776.4 billion of U.S. government debt in June, down 3.1 percent from $801.5 billion in May, according to official U.S. Treasury figures.
The percentage fall was the largest in nearly nine years, but China’s holdings were still up from $763.5 billion in April and $767.9 billion in March. [ID:nN17370347]
The overseas edition of the People’s Daily is a low-circulation offshoot of the main, domestic version of the paper. It generally echoes official thinking, sometimes in clearer words than domestic media, and this editorial highlighted the caution shaping China’s currency policies.
It stressed that Beijing would need a long time to curb its appetite for U.S. debt and learn to handle a more diverse range of assets.
“Achieving foreign exchange diversification and settling on a scientific and reasonable structure [of forex holdings] is a step we must complete,” said the editorial.
“Prior to this China has no choice but to increase holdings of U.S. government bonds.”
Losses incurred on more adventurous foreign currency investments showed that for now China lacked the expertise needed to manage a more complex portfolio, the paper said.
“It must be admitted that we’re still not well-versed in the international rules of the game,” it said. “In using capital, we are still elementary school students.”
The composition of China’s foreign exchange reserves is a state secret. Analysts estimate that up to 70 percent of the $2.13 trillion stockpile, the world’s largest, is invested in dollar-denominated assets, mainly in U.S. government debt.
The U.S. Treasury data do not capture government debt bought through intermediaries, notably brokers in London.
If these are included, as well as China’s holdings of other U.S. bonds and equities, the country owns an estimated $1.6 trillion of U.S. securities, Standard Chartered said in a report on Tuesday. (Reporting by Chris Buckley; Editing by Alan Wheatley and Ken Wills)