China’s debt holdings sized up

A new working paper by the CFR cobbles together a bunch of sources to estimate China’s true holdings of US debt. Two things stand out for me: one, China was doing most of the buying of US debt last year, and that’s out of newly accumulated reserves. Reports of US dependence on China are somewhat overblown, as Brad Setser shows elsewhere, but still, as the head of the CIC said, “be nice[r] to the people who lend you money”.

Next, given the massive drops in yield lately, and that I don’t know how active China is going to be in the secondary market, but SAFE may be sitting on some enormous paper profits from its bond holdings over the last couple of years (then again, there are currency movements). I wonder if anyone has crunched the numbers? Would be interesting to see how it compares to the CIC’s well-publicised losses (given the disparities in the size of the equity and debt holdings, my money’s on it well over-compensating)

A last side-point: China has been shifting out of agency debt aggressively. If that continues, it could mean a disconnect in T-bills and agency notes, which would imply mortgage rates in the US remained high, and might motivate more direct Treasury action in housing



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