China currently has about 64% of its foreign reserves in U.S. assets, a level that has declined gradually from as high as 84% in 2003. The majority of Chinese holdings of U.S. assets are risk free and long-term in nature, but there has been a clear trend in China’s reserve holdings that shows a persistent increase in exposure to risky assets and non-U.S. assets over the past five years.
Although, China’s net purchases of risky U.S assets have dropped sharply since mid-last year, while its net purchases of Treasurys have jumped. This underscores the authorities’ reduced risk appetite amid the ongoing global storm. Their reserve diversification process could accelerate again when global financial markets stabilize. Importantly, China’s net purchases of short-term U.S. Treasurys have jumped dramatically over the past year, accounting for the majority of the country’s total net purchases of U.S.government paper. This is an unprecedented development and a situation that warrants close attention going forward.
11:08:00, March 23, 2009
Demystifying Chinese Holdings Of U.S. Assets