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China says diversifying FX reserves, warns report on U.S. bonds may be 'fake'

Reuters  |  BEIJING 

By Kevin Yao

(Reuters) - is diversifying its foreign exchange reserves in order to safeguard their value, the country's currency regulator said on Thursday, while dismissing a media report the is halting or reducing its purchases of U.S.

reported on Wednesday that Chinese officials reviewing the country's vast foreign exchange holdings had recommended slowing or halting purchases of bonds amid a less attractive market for them and rising U.S.-trade tensions.

That spooked investors worried that sharp swings in China's massive holdings of U.S. Treasuries would trigger a selloff in bond and equity markets globally. The report sent yields to 10-month highs and the dollar lower.

"The could quote the wrong source of information, or may be fake news," the (SAFE) said in a statement published on its website.

did not immediately comment on the foreign exchange regulator's statement.

The U.S. 10-year Treasury yield edged down to 2.5366 percent from Wednesday's close of 2.549 percent, while the dollar gained 0.3 percent to 111.72 yen after the regulator's comment.

has been diversifying its foreign currency reserves investments to help "safeguard the overall safety of foreign exchange assets and preserve and increase their value", the SAFE said.

The forex reserves investment in bonds is a market activity, with investment professionally managed according to market conditions and investment needs, it said.

The regulator added that forex reserves management agencies are responsible investors in international financial markets.


Economists say they expect to continue to adjust its holdings of U.S. debt, considered to be the most liquid dollar assets, but few believe dumping U.S. Treasuries is among policy choices to be considered by top leaders.

Trade tensions between and the are expected to rise as weighs potential trade actions against Beijing, including broad tariffs or quotas on and aluminium and an investigation into Chinese intellectual property misappropriation.

Chinese firms' business deals with U.S. companies - one involving and another involving - have also recently hit stumbling blocks over national security concerns.

"We've noticed recently that protectionist voices have been rising in the U.S.," of said at a regular briefing.

Dumping U.S. holdings could roil financial markets and force the to scramble for funds, but analysts believe such a move by would risk starting a fire sale in which the value of its own portfolio would burn.

"Given our big Treasury holdings, sometimes we sell some and sometimes we buy some, changes will not be very big and there won't be big impact on markets," said Xu Hongcai, at the Centre for International Economic Exchanges, a think tank.

"We should have full confidence in the market, its depth and capacity are very big," he said.

The exact composition of China's reserves is a state secret and the subject of intense scrutiny by global investors.

China's foreign exchange reserves, the world's largest, rose $129.4 billion in 2017 to $3.14 trillion, as tight regulations and a strong yuan continued to discourage capital outflows, data from China's central showed.

That marked a turnaround after burnt through nearly $320 billion in 2016 to defend the yuan, which fell 6.5 percent against the surging dollar. The yuan gained around 6.8 percent versus the dollar last year.

China's holding of U.S. - the world's largest, climbed $131 billion in the first 10 months of 2017 to $1.19 trillion, data from the Treasury Department showed.

The holdings accounted for 38 percent of China's total reserves, up from 35 percent at the end of 2016.

In 2016, China's treasury holding tumbled $187.7 billion when the country was briefly dethroned by as the top holder of U.S. debt, as China's central dipped into its reserve to defend the ailing yuan.

(Reporting by Monitoring Desk and Kevin Yao; Additional reporting by Ryan Woo; Editing by and Jacqueline Wong)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, January 11 2018. 14:25 IST