Obama, Congress, Stimulus Mix Overlooks: China’s Slowing US Bond Appetite

China is expected to ease its spending on US debt as growth in its foreign exchange reserves slows and Beijing seeks to fund its own economic stimulus plan, analysts say.

US President-elect Barack Obama has proposed a stimulus bill expected to total at least 775 billion dollars that he has acknowledged would drive the US deficit significantly higher — and require financing from overseas.

China overtook Japan as America’s biggest foreign creditor in September and as of October held 652.9 billion dollars in US Treasury bonds, according to the latest US Treasury Department figures.

AFP

Beijing increased its Treasury bond holdings by 65.9 billion dollars in October.

It marked a continuation of the trend that began in the third quarter, when it dumped government affiliated agency bonds, such as Fannie Mae and Freddie Mac, and began ploughing money into safer Treasury bonds.

But such growth is not expected to last much longer.

“China’s reserve growth is likely to slow, and over time so will its Treasury purchases — even if they haven’t yet,” said Brad Setser, an economist with the Washington-based Council of Foreign Relations.

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