China increases holdings of US Treasury bonds

China's economy is staging a comeback as quickening inflation boosts factory profits, while stricter capital controls and a stabilising currency help stem outflows. The country's coffers rose to US$3.03 trillion (S$4.2 trillion) last month, after fal
China's economy is staging a comeback as quickening inflation boosts factory profits, while stricter capital controls and a stabilising currency help stem outflows. The country's coffers rose to US$3.03 trillion (S$4.2 trillion) last month, after falling below US$3 trillion in January.PHOTO: BLOOMBERG

BEIJING • China increased its holdings of US Treasuries by the most in two years, a sign that the world's second-biggest economy is stabilising and stricter capital controls have helped to stem capital flight.

The nation raised its ownership of United States government bonds, notes and bills by US$27.9 billion (S$39 billion) to US$1.09 trillion in March, the biggest increase since March 2015, according to a monthly Treasury Department report released on Monday.

This means China remains the second-largest foreign holder of American debt. Adding the US$3.7 billion surge in Belgium's ownership, which is often seen as a home to China's custodial accounts, the total increase was the biggest since 2014.

China's economy is staging a comeback as quickening inflation boosts factory profits, while stricter capital controls and a stabilising currency help stem outflows.

The curbs have helped arrest declines in the world's largest foreign-exchange reserves, where the Treasuries are held.

The country's coffers ticked up for the third month to US$3.03 trillion last month, after falling below US$3 trillion in January as the nation defended the yuan. Reserves are still down sharply from a record US$4 trillion in 2014.

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A lot of foreign demand is dependent on China's demand: The fact that they're such a concentrated holder means their purchases or sales will have an impact on the market.

MR AARON KOHLI, a fixed-income strategist at BMO Capital Markets, on how China's move will in turn affect demand in other countries.

"A lot of foreign demand is dependent on China's demand: The fact that they're such a concentrated holder means their purchases or sales will have an impact on the market," said Mr Aaron Kohli, a fixed-income strategist at BMO Capital Markets.

Japan, the largest non-US holder of government debt, increased its total to US$1.12 trillion, up US$3.4 billion from a month earlier.

Total foreign ownership of US Treasuries amounted to about US$6.08 trillion in March - the highest since September, but down from a peak of US$6.3 trillion a year earlier. Net purchases of US Treasury bonds and notes by foreigners were US$24.4 billion.

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A version of this article appeared in the print edition of The Straits Times on May 17, 2017, with the headline 'China increases holdings of US Treasury bonds'. Print Edition | Subscribe