From: the.wise.one@abel.co.uk   
      
   US treasury bonds 'still the best option'   
      
   By Xin Zhiming (China Daily)   
   Updated: 2008-11-20 07:03   
      
      
   China is likely to continue increasing holdings of US treasury bonds   
   even after becoming the No 1 holder because it is the best way to deploy   
   its $1.9 trillion foreign exchange reserves, economists say.   
      
   On Monday, US Treasury data showed that China had replaced Japan to   
   become the top holder of US treasury debt in September.   
      
   With a $43.6 billion increase in holdings of US treasury securities in   
   September, China's overall holdings amounted to $585 billion. Japan cut   
   its holdings to $573 billion from $586 billion in August.   
      
   Net foreign purchases of long-term US securities totaled $66.2 billion   
   in September, up from $21 billion in August and $18.4 billion in July.   
      
   Treasury data suggests that foreign investors still regard the US as a   
   relatively better place to invest when markets worldwide are crumbling,   
   analysts said.   
      
   "That's why China has increased its holdings," said Dong Yuping, senior   
   economist at the Institute of Finance and Banking affiliated to the   
   Chinese Academy of Social Sciences.   
      
   As the US financial crisis worsens, Washington is in dire need of   
   capital to fund its massive market rescue plan; but some domestic   
   economists argue that China should not use its foreign exchange reserves   
   to purchase US bonds for fear that it may incur huge losses.   
      
   "But China may not have many options," Dong said.   
      
   The US economy, though hemorrhaging from the crisis, remains the largest   
   and strongest; and the EU and Japan are not yet a serious challenge to   
   US pre-eminence. Investment in dollar assets, therefore, carries the   
   least risk, he said.   
      
   If China reduces its holdings of US debt, others may follow suit, which   
   will lead to a weakening of the dollar and depreciation of   
   dollar-denominated assets, thus severely hurting China's interests.   
      
   "China and the US are in the same boat," he said.   
      
   "You may not like it, but China has to move along this path," said Yan   
   Qifa, senior economist with the Export-Import Bank of China.   
      
   And now that many countries are increasing holdings of US treasury   
   bonds, China's potential returns from the bonds will increase, said Chen   
   Gong, chief economist and chairman of Anbound Group, a Beijing-based   
   consulting firm.   
      
   "So China may continue to increase its holdings," he said.   
      
   However, some experts argue that Beijing use its considerable financial   
   leverage to set conditions such as the US opening its financial markets   
   more to Chinese funds, and allowing exports of high-tech products to China.   
      
      
   http://www.chinadaily.com.cn/china/2008-11/20/content_7221498.htm   
      
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