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China says diversifying FX reserves, warns report on US bonds may be ‘fake’

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BEIJING: China is diversifying its foreign exchange reserves in order to safeguard their value, the country’s currency regulator said on Thursday, while dismissing a media report the government is halting or reducing its purchases of US debt.


Bloomberg News reported on Wednesday that Chinese officials reviewing the country’s vast foreign exchange holdings had recommended slowing or halting purchases of US Treasury bonds amid a less attractive market for them and rising US-China trade tensions. That spooked investors worried that sharp swings in China’s massive holdings of US Treasuries would trigger a sell-off in bond and equity markets globally. The report sent US Treasury yields to 10-month highs and the dollar lower.


“The news could quote the wrong source of information, or may be fake news,” the State Administration of Foreign Exchange (SAFE) said in a statement published on its website.


Bloomberg News did not immediately comment on the foreign exchange regulator’s statement.


The US 10-year Treasury yield edged down to 2.5366 per cent from Wednesday’s close of 2.549 per cent, while the dollar gained 0.3 per cent to 111.72 yen after the regulator’s comment.


China has been diversifying its foreign currency reserves investments to help “safeguard the overall safety of foreign exchange assets and preserve and increase their value”, the SAFE said.


The forex reserves investment in US Treasury bonds is a market activity, with investment professionally managed according to market conditions and investment needs, it said.


Economists say they expect China to continue to adjust its holdings of US government debt, considered to be the most liquid dollar assets, but few believe dumping US Treasuries is among policy choices to be considered by top leaders.


Trade tensions between China and the United States are expected to rise as President Donald Trump weighs potential trade actions against Beijing, including broad tariffs or quotas on steel and aluminium and an investigation into Chinese intellectual property misappropriation.


Chinese firms’ business deals with US companies — one involving Alibaba Group Holding Ltd and another involving Huawei Technologies Co — have also recently hit stumbling blocks over national security concerns. — Reuters


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