China cut its holdings of U.S. government debt by 36.5 billion U.S. dollars in August, which was the first decrease after four consecutive months of increases and also the biggest one-month decline in recent years, according to statistics issued by the U.S. Treasury this week. China now holds more 1.1 trillion U.S. dollars of U.S. government debt.

"Over the past few months, U.S. Treasury yields have been steadily dropping, and Treasury prices have been rising. Given the relatively good prices, it is reasonable and efficient for China to sell part of its U.S. dollar assets," said Ding Zhijie, a professor at the School of Banking and Finance under the University of International Business and Economics.

Yuan Gangming, an expert on international finance at the Chinese Academy of Social Sciences, said that the central banks of major economies have all been reducing their holdings of U.S. government debt in recent weeks.

However, Yuan said China's reduction in its U.S. debt holdings is just a minor adjustment to its foreign exchange reserves. There are no signs that China is reducing its holdings of U.S. debt in a systematic and steady way, he said.

Worried about safety of dollar assets?

Certain experts said that the reduction in U.S. debt holdings has reflected China's foreign exchange regulator's worries about the long-term depreciation of the U.S. dollar and its eagerness to get out of the "dollar trap."

"U.S. dollar assets make up nearly 70 percent of China's 3.2 trillion U.S. dollars of foreign exchange reserves, and the European and U.S. debt crises have exposed the risks of such an imbalanced reserves structure. China is 'kidnapped' by U.S. debt and needs to change the situation as soon as possible," Yuan said.

Although economists generally believe that the possibility of the U.S. sovereign debt default is very low, their discussions about the risks from U.S. sovereign debt default have never ended.

"Currently, the U.S. public debt burden is becoming heavier, and the United States' desire to alleviate its debt by various means, such as depreciating the U.S. dollar, is strengthening," Cheng Fengying said. "If the United States prints the U.S. dollar quietly, it will lighten its debt burden, but China's foreign exchange reserves will obviously be devalued."

To a certain extent, that is why China reduced the amount of U.S. Treasury securities it holds. Ding said, "Selling the U.S. Treasury securities and observing the situation is an option for China in the current economic situation."

Buying U.S. Treasury securities: Still practical?

"Regarding the issue of dealing with U.S. Treasury securities, China is in a dilemma," Yuan said. "The rapid growth of China's foreign exchange reserves is making the world pay closer attention to China's trade situation and the currency value of the RMB and could lead to disputes easily. But China does not have better options to invest its foreign exchange reserves."

The growing risk from the uncertainty of the U.S. assets is making the diversification of China's foreign exchange reserves more urgent. Cheng said: "Chinese enterprises could participate in more direct investments in overseas markets and could also select high-quality foreign companies and buy their shares. However, that will be a long process and will not be accomplished in one stroke."

Some experts said that the Chinese government has been seeking to diversify its foreign exchange reserves in recent years, which is crucial to increasing the value of China's foreign exchange assets. However, if China wants to definitively change the overall situation, it must explore ways to drive its domestic economic development, reduce independence on foreign trade and reduce the growth rate and scale of foreign exchange reserves.

Source:cntv.cn