Last week, the Financial Times reported comments by Mr. Luo Ping, a Director-General of the China Banking Regulatory Commission in New York that China would continue to buy US Treasuries in spite of its misgivings about US finances.
This is a big story and a big deal. China has the world’s largest holding of US Treasuries. The American media, in recent years, has kept harping on the possibility that China would one day get angry and stop buying US Treasuries. That, according to such media, will cause interest rates on Treasuries to explode upwards causing damage to the US economy.
In late January 2009, the New York Times ran a story to this effect reporting that China had curtailed its appetite for US Debt. CNBC hyped up this story and raised fears that US interest rates would zoom upwards because of lack of Chinese demand. (see our article –“CNBC & US Treasuries – More Things Change, More They Stay the Same” – January 31, 2009 – http://www.cinemarasik.com/2009/01/09/financial-media–more-things-change-more-they-stay-the-same.aspx )
The Financial Times article, in its factual, no-nonsense style, debunks this myth (“China to stick with US bonds” – Harry Sender – February 12, 2009 – www.ft.com/cms/s/a403d). Mr. Luo Ping was speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention. The article attributes the following quotes to Mr. Ping:
- “Except for US Treasuries, what can you hold?’ Gold? You don’t hold Japanese Government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.:”
- Speaking colloquially according to the FT, Mr. Ping said “We hate you guys. Once you start issuing $1 trillion-$2 trillion ($1,000-$2,000 billion) ….we know the dollar is going to depreciate., so we hate you guys but there is nothing much we can do”.
According to Mr. Bianco, the total amount of US Securities purchased by China went up from $120 billion in November 2007 to $155 billion in November 2008. The real story behind these numbers is that China has made a huge asset allocation shift. According to Mr. Bianco, China has been selling US Agency Securities, US Corporate Bonds, US Equities and putting all the money in US Treasuries. This is indeed an enormous reduction in China’s risk appetite.
Mr. Bianco reminded us that China’s Sovereign Wealth Fund has taken an enormous hit (down about 85%) in its investment in the private-equity giant Blackstone. China also had a narrow escape indeed, when Bear Stearns collapsed before China could close its planned investment in Bear Stearns.
May be this is why Mr. Luo Ping said “There will be no bottom-fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books.”
We thank the Financial Times for reporting this critically important story. We do wonder why CNBC chose to ignore this important story when it hyped up the negative article about Treasuries in the New York Times in late January. Another example of CNBC’s Jihad against US Treasuries?
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