The NY Times claims that "Reversing its role as the world's fastest-grower buyer of United States Treasuries and other foreign bonds, the Chinese government actually sold bonds heavily in January and February before resuming purchases in March..." It cites Chinese data released over the weekend.
They did no so thing. China did report that its reserves swung sharply, falling a record $32.6 bln in January and another $1.4 bln in Feb before rising $41.7 bln in March. The NY Times improperly tries to extrapolate from reserves to holdings of foreign bonds. And because the report does not cite other countries' bonds besides US Treasuries (though it does claim a "flood of cash" went to Hong Kong and that some mainland tourists were reportedly buying gold and diamonds in HK during the Chinese New Year), one is left with the impression that China sold Treasuries in Q1 09.
It is possible, but there is no compelling evidence that this is true. On April 15th the US Treasury will publish the TIC data for the month of February. The US Treasury's report of foreign holdings of US Treasuries is the most authoritative report.
What we do know from the last report is that in the month that China experienced record decline in reserves, its holdings of US Treasuries actually increased. Specifically, in January, Chinese holdings of US Treasuries (long and short-term) rose $12.2 bln. China did trim is holdings of Agencies by $4.2 bln. Overall, the TIC data showed China increased its US dollar denominated holdings by $13.4 bln. Of course, while the Treasury's data is the most authoritative, there are ways in which China could have divested themselves of Treasuries that would not have been detected by the TIC report. For example, the central bank could have sold Treasuries through a foreign bank(s), but the NY Times does not demonstrate this or even claim this.
They simply go from reserves to the sales of assets. There is no attempt to incorporate valuation swings in their news reporting/analysis. The dollar, for example, strengthened by more than 5% against the euro during Q1. There was no attempt to reconcile the Jan TIC data with the Chinese reserve figures.
Consider this little thought-experiment. The NY Times cites "belief" that roughly two-thirds of the $1.95 trillion in reserves are in US securities. That leaves roughly $643.5 bln not in dollars. For the sake of this exercise, imagine that sum is denominated in euros. And note that in Q1 09, the euro fell more than 5% against the dollar. That alone would account for a decline of about $32.17 bln in reserves. As we noted, China reported a $32.6 bln.
The NY Times' shoddy analysis/reporting undermines serious attempts to address this important issue. Contrary to what the NY Times claims, the slowdown in reserve accumulation in China does not "seem to suggest that investors were sending large sums of money out of mainland China early this year in response to worries about the country's economic future and possibly its social stability in the face of rising unemployment." A much simpler explanation is that valuation adjustments can account for the bulk of the volatility in Chinese reserves. There has been extra volatility in Chinese trade flows, in part because of the synchronized global downturn and in part because of the distortions caused by the Chinese New Year. Despite some short-comings, the TIC data on April 15th will shed more light on China's activities in the US securities market, especially the Treasury market.
