China has called an end to a six-month streak of dumping US Treasuries and returned in December to being a net buyer of US government debt again for the first time since last May. The move is part of a series of measures the country has introduced to manage capital flight. China’s foreign exchange reserves slipped below $3tn in January, its lowest for nearly six years. Foreign property investment plunged 84 per cent last month as Beijing moved to choke off the flow of foreign acquisitions. Four government agencies, including the commerce ministry and the central bank, said in December they would apply tighter scrutiny to “irrational” outbound deals including property, hotels, entertainment assets and sports clubs. Despite its Treasuries purchases in December, China’s total holdings of US government debt dropped by the greatest amount annually, falling by $188bn in 2016. Of the 30 largest disclosed holders of Treasuries, half reduced their positions last year. (FT, Bloomberg, Reuters)
That pretty much locks in Australia’s dwelling construction bust, as well as lower pressure on foreign bidding for house prices (not gone but diminished). It may also herald a period of yuan stability which will be confirmed if China returns to reform later this year with tighter monetary conditions.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
