It’s hard to tell how significant or durable an occurence this is, but it certainly deserves close attention. From Brad Setser’s fine blog, Follow the Money:
China Reduced Its Dollar Holdings in FebruaryPosted on Wednesday, April 15th, 2009
It is a good thing the US trade deficit has come down, because foreign demand for US financial assets–actually foreign demand for US assets other than short-term Treasury bills–has dried up.
Foreign investors bought $68 billion of T-bills in February. Russia alone (likely Russia’s central bank) bought close to $14 billion. Private investors–seemingly Japanese private investors–also bought $23.5b of longer-term Treasury notes. Otherwise, though, foreign investors didn’t buy much of anything. And Americans also didn’t buy many foreign assets.*
After Keith Bradsher’s New York Times article, though, all eyes are on China.
In February, China bought Treasuries. $4.64b by my count. It bought $5.61b of bills, while reducing its long-term Treasury holdings by $0.96 billion.
But China also reduced its US bank deposits by $17.24 billion.
Consequently, by my count, China’s total US holdings fell by $13 billion. Short-term claims fell by $11.3b, and long-term claims fell by $2b. The data on China’s short-term claims can be found here.
Is this the beginning of the end? Has China decided to stop buying US assets?