China’s Treasury Bond Holdings Rose, Not Fell

Derek Scissors / February 15, 2011

The Department of the Treasury today updated its figures on foreign holders of Treasury bonds. The update appears to show that Chinese holdings of Treasuries fell slightly last year. This is nonsense.

The PRC accumulated $471 billion in surplus foreign exchange in 2010. Under Beijing’s own balance-of-payment rules, that money cannot be spent at home. This is not a matter of debate—it physically cannot be spent at home under current conditions.

So where is it? It is apparently not in new purchases of U.S. agency debt issued by Fannie Mae and Freddie Mac. No foreign market is nearly large enough to absorb the money—for example, China’s purchases of Japanese bonds are much, much smaller and may be shrinking. (more…)