China, whose $2.45 trillion in foreign-exchange reserves are the world's largest, is turning bullish on Europe and Japan at the expense of the United States.
The nation has been buying "quite a lot" of European bonds, said Yu Yongding, a former adviser to the People's Bank of China. Japan's Ministry of Finance said Aug. 9 that China bought $20.1 billion more Japanese debt than it sold in the first half of 2010, the fastest pace of purchases in at least five years.
Yongding was part of a foreign-policy advisory committee that visited France, Spain and Germany from June 20 to July 2.
"Diversification should be a basic principle," Yu said, adding a "top-level Chinese central banker" told him to convey to European policy makers China's confidence in the region's economy and currency. "We didn't sell any European bonds or assets, instead we bought quite a lot."
China's position may make it harder for the greenback to rebound after falling as much as 10 percent from this year's peak in June as measured by the trade-weighted Dollar Index. The nation cut its holdings of U.S. government debt by $100 billion, or 11 percent, through June from last year's record of $939.9 billion in July 2009, according to Treasury Department data released Monday.
China's holdings of long-term Treasuries fell for the first time in 15 months in June to $839.7 billion, a 2.5 percent drop. The nation's overall Treasury position declined for a second month to $843.7 billion, the lowest since May 2009, Treasury data showed.
The decline represents the first year-over-year drop in China's Treasury holdings since 2001.
Asian central banks holding some 60 percent of the world's foreign-exchange reserves are turning away from the dollar. Concerned about weakening U.S. growth and the Treasury's record borrowing, they are switching toward euro assets to safeguard reserves, driving gains in the 16-nation currency. South Korea, Malaysia and India reduced their holdings of Treasuries, U.S. government data show.
The allocations to dollars in official foreign-exchange reserves declined in the first three months of the year, to 61.5 percent from 62.2 percent in the final quarter of 2009, the International Monetary Fund said June 30.
