Chinese Economists Say Change in U.S. Treasury Holdings Normal Fluctuation; Change in Yuan Trading Band Expected; Must Dispel Currency Appreciation Forecasts

Don't hype China's US T-bond trim: economists

The cut is just an investment adjustment in line with domestic situations and the international economic environment and is within a rational scale of fluctuation, said Tan Yaling, president of the China Forex Investment Research Institute.

"There is no need to make a fuss about it, as either a rise or a fall in a country's holdings is normal market operations," Tan said.

As the US Federal Reserve's decision to taper its quantitative easing last December brought an upbeat note to investors, the yield of its 10-year treasury bonds surged to 3 percent, the highest since July 2011.

The high yield dragged down bond prices and sapped the value of China's holdings.

However, Tan argued that China's persistent holding of a large amount of US T-bonds is a sensible choice, as the bonds stand out among limited investment choices due to their relatively low risks and stable returns.

......"Due to the US quantitative easing in recent years, the value of China's dollar assets were in effect diluted, and the yield was not that high with the depreciation of the US dollar," according to Guo.

To better manage the investment of foreign reserves, China should diversify its investment portfolio to wean itself off over-reliance on dollar-based assets, he said.

Meanwhile, the growing forex deposit should be further tapped to benefit domestic economic development by encouraging firms and institutions to hold more foreign exchange, Guo added.

His views were echoed by Tan, who said that the enormous stockpile must be tamed to serve China's real economy, instead of being a burden for investment.

In 谭雅玲：汇率幅度扩大或改变人民币单边升值走向, Tan Yaling also argues that the widening of the trading band was timed and is a part of the central banks move to devalue the yuan in recent weeks. That was also the widely held opinion of analysts when the drop occurred.