China‘s holding of US Treasuries climbed to a 11-month high of US$1.17 trillion in July, marking the sixth consecutive month of growth, along with the expansion of the foreign exchange reserve and a strengthened renminbi.
The US Treasury Department said on Monday that China’s holdings were US$19.5 billion higher than in June and up by US$114.9 from January. China remains the largest foreign holder of US Treasuries, US$52.9 billion more than Japan.
The value of US Treasuries owned by the Chinese government accounted for about 37.85 per cent of its foreign exchange reserve by July, up from 35.06 per cent in January, according to the State Administration of Foreign Exchange.
An easing of capital outflows and a stronger Chinese currency have facilitated purchases of US Treasuries, said experts, and this trend may continue in the short term.
“Cross-border capital flows and the foreign exchange market’s supply-demand situation were generally balanced in August, while the rise of asset prices in global financial markets has pushed the growth of foreign exchange reserve,” a statement of the SAFE said on Monday.
Further stabilised cross-border capital flows in the future will keep the foreign exchange reserve within a “reasonable and moderate” range, it said.
The country’s foreign exchange reserve grew for seven consecutive months to $3.09 trillion by August, after a seven-month drop to a record low of US$2.998 trillion in January.
A stronger renminbi has boosted the increase in the foreign exchange reserve, while capital outflow pressures have been released, said Wen Bin, chief researcher with China Minsheng Bank. His expectation of a steady growth of Chinese economy in the remaining four months this year will support a relatively stable renminbi exchange rate.
“But its fast appreciation earlier this month may be replaced by a two-way fluctuation against the US dollar”, said Wen, who suggested further improving the market-oriented reform of the exchange rate mechanism.
The yuan has appreciated more than 5 per cent against the US dollar so far this year, almost offsetting the 7 per cent weakening in 2016.