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Post by niseag on Feb 5, 2011 11:28:39 GMT 4
Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events.
It is not clear whether China’s motive is simple risk aversion in the wake of a sharp widening of corporate and mortgage spreads during the past two weeks, or whether there also is a political dimension. With the expected termination of the Federal Reserve’s special facility to purchase mortgage-backed securities next month, some asset-backed spreads already have blown out, and the Chinese institutions may simply be trying to get out of the way of a widening. There is some speculation that China’s action has to do with the recent deterioration of US-Chinese relations over arm sales to Taiwan and other issues. That would be an unusual action for the Chinese to take–Beijing does not mix investment and strategic policy–and would be hard to substantiate in any event.
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Post by Miamore on Feb 28, 2011 5:39:48 GMT 4
'Global Credit Warfare': China Preparing for a Treasury Bond Sell-Off?
Published on 02-27-2011
Source: Seeking Alpha
China may soon call time on Western quantitative easing. More worryingly, the language she is using is far from friendly.
In a report issued last month, the Dagong Global Credit Rating Company praises "emerging creditor countries" for preventing the collapse of "debtor economies" during the recent crisis, but stresses the "vulnerable position" of America, whose "excess issuance" of dollars has triggered a "global credit war" that "arouses all the countries in the world to take various credit resources as a financial weapon to safeguard the national interests."
Dagong blames QE for increasing exports of capital and raising international commodity prices, causing price and asset inflation in developing countries where, according to a cited World Bank estimate, net capital flows to stockmarkets soared by 42% and to bond markets by 30%.
Signalling that a US Treasury bond sell-off is a "financial weapon" that China may be prepared to use in its defense, Dagong notes that creditor nations stabilised the situation in 2010 not only by "continued buying" of treasury bonds but also because they "continued to hold" them.
China is by far the biggest holder of US Government debt - $891.6 billion at December 2010, according to the US Treasury. This is about the same as a year before, but ignores possible purchases via intermediary nations. In 2009, ex-Roubini associate and now NEC adviser Brad Setser plausibly argued that much of the British buying was on behalf of the Chinese.
This is all the more credible because of the UK government's own deep and long-standing financial troubles: Why would one near-bankrupt lend to another? In December 2010 the ostensible UK holding was $541.3 billion - triple the figure from 12 months earlier. Setser's January 2009 estimate was that taking US Treasuries and Agencies together, China controlled $1.425 trillion-worth.
The UK has since increased "its" stake in Treasuries by over $360 billion, though China appears to have been reducing its exposure to Agencies for some time, according to a July 2009 report from the Congressional Research Service:
Data from the Department of Treasury indicate that in recent months China has sought to reduce its holdings of LT U.S. agency debt, while increasing its holdings of short-term U.S. Treasury securities.
This shift from Agencies to Treasuries, and from long- to shorter-date debt, is itself a subtly troubling trend.
Total Chinese foreign exchange reserves - mostly denominated in dollars, one understands - were $2.45 trillion in June 2010 and the current figure may be over $2.8 trillion. The effect of currency depreciation on its foreign assets is massively expensive to the People's Republic, and it is little wonder that she should be reconsidering her investment - and musing on using her leverage to further other objectives.
Officially, China repudiates the notion of using its foreign exchange reserves as an "atomic weapon", but the use of an ostensibly unconnected agency to convey diplomatic messages would not be out of character. Founded in 1994, Dagong is based in Beijing, and in 2008 its chairman Guan Jianzhong received a "special government allowance" - not merely a monetary prize but a sign of governmental approval.
America still has the world's largest economy, but of developed nations it is also one of the most dependent on refinancing in 2011 - third in GDP terms (27.6%) after Japan and Iceland, and first in absolute terms.
As early as 2007, Brad Setser gave evidence about the US' economic vulnerability to foreign sovereign wealth funds, to the USCC. The US-China "Strategic Economic Dialogues" also began that year and one suspects that some home truths were being told even then. Now the noises are being made more publicly and discordantly, if still at one remove from official sources.
It is getting more serious, and Dagong is not hopeful:
The United States, as the biggest country involved in sovereign debt crisis around the world, will continue its quantitative easing policy when the country is in danger, and the world credit war will be escalated due to the overflow of US dollars.
Clearly we are still at the shot-across-the-bows stage, but we have come a long way from four years ago.
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Post by MMM on Jun 5, 2011 10:17:00 GMT 4
July 4, 2011
China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.
Treasury bills are securities that mature in one year or less that are sold by the U.S. Treasury Department to fund the nation’s debt.
Mainland Chinese holdings of U.S. Treasury bills are reported in column 9 of the Treasury report linked here.
Until October, the Chinese were generally making up for their decreasing holdings in Treasury bills by increasing their holdings of longer-term U.S. Treasury securities. Thus, until October, China’s overall holdings of U.S. debt continued to increase.
Since October, however, China has also started to divest from longer-term U.S. Treasury securities.
Thus, as reported by the Treasury Department, China’s ownership of the U.S. national debt has decreased in each of the last five months on record, including November, December, January, February and March.
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Post by niseag on Jun 11, 2011 5:39:04 GMT 4
A Chinese ratings house has accused the United States of defaulting on its massive debt, state media said Friday, a day after Beijing urged Washington to put its fiscal house in order.
"In our opinion, the United States has already been defaulting," Guan Jianzhong, president of Dagong Global Credit Rating Co. Ltd., the only Chinese agency that gives sovereign ratings, was quoted by the Global Times saying.
Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies -- eroding the wealth of creditors including China, Guan said.
Guan did not immediately respond to AFP requests for comment.
The US government will run out of room to spend more on August 2 unless Congress bumps up the borrowing limit beyond $14.29 trillion -- but Republicans are refusing to support such a move until a deficit cutting deal is reached.
Ratings agency Fitch on Wednesday joined Moody's and Standard & Poor's to warn the United States could lose its first-class credit rating if it fails to raise its debt ceiling to avoid defaulting on loans.
A downgrade could sharply raise US borrowing costs, worsening the country's already dire fiscal position, and send shock waves through the financial world, which has long considered US debt a benchmark among safe-haven investments.
China is by far the top holder of US debt and has in the past raised worries that the massive US stimulus effort launched to revive the economy would lead to mushrooming debt that erodes the value of the dollar and its Treasury holdings.
Beijing cut its holdings of US Treasury securities for the fifth month in a row to $1.145 trillion in March, down $9.2 billion from February and 2.6 percent less than October's peak of $1.175 trillion, US data showed last month.
Foreign ministry spokesman Hong Lei on Thursday urged the United States to adopt "effective measures to improve its fiscal situation".
Dagong has made a name for itself by hitting out at its three Western rivals, saying they caused the financial crisis by failing to properly disclose risk.
The Chinese agency, which is trying to build an international profile, has given the United States and several other nations lower marks than they received from the the big three.
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