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Dear CIGAs,
The Treasury Department reported China’s total Treasury holdings as of December 2009 at $755.4 billion, down from $789.6 billion in November 2009. That is a not insignificant $34.2 billion reduction. It would appear that China has quietly been making good on its intent to diversify away from its overly lopsided US Dollar based holdings in its massive reserves. Since July 2009, they have sold $45.1 billion in Treasuries and have slipped back to becoming the second largest holder of U S Treasury debt behind Japan, after they had become our largest customer back in October 2008.
I should point out however, that Hong Kong has been reporting a steady increase in the size of their US Treasury holdings for some time now, having basically doubled them since December 2008. It could be that the Treasury has taken some of the reported holdings out of the “China” category and put them in the “Hong Kong” category for classification purposes but I am unclear if that is the case. If that were true, then it would minimize the significance of the Chinese reduction in Treasury holdings that leaps out upon initial perusal of the report.
If we use a rough number of $800 billion at its peak, China was reportedly holding that amount back in July 2009. They are down to approximately $755 billion. Hong Kong however was near $115 billion in July and is presently reported to be holding close to $153 billion. Almost the entire difference in the China decrease is matched by a corresponding increase in the category noted by “Hong Kong”.
We might have to wait until the June report (which comes out in August) to get a more in depth look at exactly what is going on in that aspect. That is when Treasury reclassifies a great deal of the holdings that get reported out of London and perhaps in this case, Hong Kong.
