Economy

China should cut US Treasury holdings: economist

(Agencies)
Updated: 2010-07-20 06:31

BEIJING – China should cut its holdings of US Treasury securities when market demand is strong, a prominent economist said in remarks published on Monday.

US Treasury Secretary Timothy Geithner arrives to testify about the US economic policy towards China during a hearing of the Senate Finance Committee on Capitol Hill in Washington June 10, 2010. [Agencies]

Beijing reduced its US Treasury holdings in May by $32.5 billion to $867.7 billion, but it actually bought a net $3 billion in long-term Treasuries and remained the largest single holder of US government debt, the Treasury reported on Friday.

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Yu Yongding, a former academic adviser to the central bank and now a professor with the Chinese Academy of Social Sciences, said Beijing should invest in assets denominated in other currencies as well as other financial instruments and real goods.

"Although assets in other currencies and forms are not an ideal replacement for US Treasury bonds, diversification should be a basic principle," Yu wrote in the China Securities Journal.

"When demand for US Treasury securities is strong, it's a rare opportunity for us to gradually pull back. That way, it will not have a big impact on prices and China will not suffer too much," he said.

Zhang Monan, a researcher with the State Information Center, a think tank under the National Development and Reform Commission, told the paper that China should invest more of its $2.5 trillion of foreign exchange reserves, the world's largest stockpile, in hard assets such as gold.