China Hiding Treasury Purchases

Derek Scissors /

China’s reported holdings of U.S. Treasury bonds fell sharply again in June and are now almost $100 billion lower than they were in July 2009. The press reports this as meaningful and important. It isn’t.

You may have noticed that American interest rates are not soaring; in fact, they’re at historic lows. One reason they’re not soaring is because, contrary to widespread assertions, American interest rates don’t depend on the PRC.

The other reason is, over the same period, reported British holdings of U.S. Treasuries rose $265 billion. Why would the UK increase its holdings 273% in 11 months, when the yield on Treasuries is close to zero? The answer: China’s State Administration for Foreign Exchange (SAFE) has an office in London. When purchases are made through that office, they are initially counted as purchases from Britain, not China. (more…)