China slows U.S. bond purchases

China slows U.S. bond purchases

Speaking with the New York Times, a top Chinese economist explained why China is cutting its holdings of U.S. bonds by quoting John Maynard Keynes: “If you owe your bank manager a thousand pounds, you are at his mercy. If you owe him a million pounds, he is at your mercy.”

With that reasoning in mind, China sold U.S. Treasuries and other foreign bonds in the first two months of the year; it returned to buying them in March. Around two-thirds of China’s foreign reserves are held in dollars.

That bulk holding has complicated relations between the two economic super-powers during the Great Recession. Chinese Premier Wen Jiabao and the central bank governors have expressed concern about the U.S. economic situation and their exposure to it — though the resumption of  purchases in March suggests they may believe the outlook is better.

Still, numerous economists and policy experts have suggested careful, controlled, slow draw-down would be a good thing for both countries.