China's Slowing Treasury Purchases

December 15th, 2011
in

With almost each Treasury holdings release, the mainstream media claims China is selling Treasuries, when in reality purchases are just flowing through the United Kingdom (and are later revised to China... see here, here, and here for a few examples). So, not a surprise when I read this via the AP:

China bought less U.S. Treasury debt in October and total foreign holdings dipped for the first time since July.

Total foreign holdings of Treasury debt edged down 0.1 percent to $4.66 trillion, the Treasury Department reported Thursday.

China, the largest foreign holder, bought 1.2 percent less to bring its total holdings to $1.13 trillion. China had increased its holdings 1 percent in September after a reduction of 3.1 percent in August.

The small decline in overall holdings still left them at high levels that suggest foreign demand for U.S. debt remains strong.

Details as to why the United Kingdom's holdings should be included can be found here.
BUT, when I looked at the data, something caught my eye. While the month over month level of Treasury holdings actually declined this time when accounting for the United Kingdom, which could simply be noise, the longer term trend is clear. The pace of growth in Chinese purchases of Treasuries has declined rather dramatically (in percentage terms). This may prove to be a smaller issue for the U.S. in terms of Treasury demand (the smaller percent is off a larger base, so in $$ terms the growth is still significant), but it may reflect the difficulty China may have growing their export driven economy at the scale required to prevent social unrest, as global aggregate demand has waned.
Source: Treasury

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