CHINA’S reductions in its U.S. Treasury holdings are not a strategic cut, but are instead small, tactical adjustments based on market conditions, a Chinese foreign exchange regulatory official said.

    U.S. Treasuries are very important for international investors and central banks around the world due to the debt market’s rating, depth and liquidity conditions, the official told reporters in Beijing.

    “Sometimes we expect Treasury prices to rise, sometimes we expect Treasury prices to drop. The market should not over-interpret whether China’s Treasury reduction is strategic. Definitely not,” the official said.

    “We will make some small, tactical adjustments in U.S. Treasuries in a very dynamic way based on market principles.”

    China’s foreign exchange reserves fell far more than expected in November, by US$69.06 billion to US$3.052 trillion, the lowest level in nearly six years.

    The reserves could be influenced by several factors, including changes in China’s international balance of payments.

    “Our international balance of payments are relatively safe and sound,” the official said. “The size of foreign exchange reserves of US$3 trillion is still relatively ample.”

    China was dethroned by Japan as the largest holder of U.S. government debt in November, as the Chinese central bank has dipped into its foreign exchange reserves to support the yuan.

    In October, China’s holdings of U.S. Treasuries fell by US$41.3 billion to US$1.115 trillion.

    Investors are paying close attention to declines in China’s holding of U.S. Treasuries as any sharp selloff could add further upward pressure to U.S. interest rates, which in turn can undermine the Chinese currency.

    As the yuan has fallen, overseas investments by Chinese firms have come under scrutiny as a channel for illegitimate outflows.

    (SD-Agencies)