China Boosts Holdings of U.S. Treasurys for Second Month

China, the biggest foreign owner of U.S. government debt, increased its holdings by $11 billion to $1.19 trillion in March — a gain that may ease concerns Beijing would dump some of its hoard amid growing trade tensions between the two countries.

Data released by the U.S. Treasury Department on Tuesday show China added to its holdings of U.S. government bonds, bills and notes for the second straight month after a drop of $16.7 billion in January. China has now been Washington’s largest creditor since June, when it overtook Japan.

Media reports in January said that China was considering slowing or halting purchases of U.S. Treasurys as part of its response to growing tariff and trade threats from Washington and also as part of a strategy to diversify investments made with its foreign-exchange reserves. But the State Administration of Foreign Exchange (SAFE) branded such reports “fake news” and said China’s investment in U.S. Treasurys was “market-driven and managed professionally based on investment demand and market conditions.”

Finance Vice Minister Zhu Guangyao also reiterated at a briefing in April that “China is a responsible investor in the international capital market.”

Analysts say it’s unlikely Chinese authorities would pursue such a policy, as the size of the country’s foreign-exchange reserves, currently $3.125 trillion, mean Treasurys are a prime target for investment.

“That’s something not to be done as the first course of action, if it is used at all, because a lot of measures are there even before we get to that point,” George Goncalves, head of U.S. rates strategy at Japanese investment bank Nomura Holdings, said at a briefing in Shanghai last month.

“There’s always concern out there of losing a large sustainable important investor, but we also believe there is a separation between the trade, the tariffs and the financial assets.”

The U.S. Treasury Department’s data doesn’t show who is the ultimate owner of the debt held in different countries, which means that China could be buying and selling Treasurys in other domains such as Ireland, the U.K., Luxembourg and the Cayman Islands. These are all major centers for international finance and fund management, and China has been known to trade through these countries to disguise its activities, making it difficult to calculate the true size of its holdings.

Contact reporter Leng Cheng (chengleng@caixin.com)