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.
SAFE’s goal is to reduce China’s visible dependence on the United States. It is motivated by domestic political pressure within the PRC. Just as many people here think China holding American bonds makes the United States dependent on China, many people in China think holding U.S. bonds leaves the PRC hostage to American policy that could reduce the bonds’ value. SAFE is trying to hide some of China’s bond holdings by routing them through Britain.
SAFE obscures things – it’s a tool of the Communist Party. The problem is on the American side, where the Department of the Treasury reports monthly information on bond ownership known to be inaccurate. Treasury also publishes much better figures, but only once a year and late. The most recent figure from this more accurate data dates back to June 2009. It shows China’s bond holdings at $1.46 trillion, far above the initial figure from Treasury of $916 billion for that month.
The problem is not that China is selling American bonds; it almost certainly isn’t. The problem is it takes too long to find out who actually is selling and buying our bonds.