U.S. Treasury bonds still a better choice
Han pointed out that the U.S. has debt problems, but similar problems are more serious for Europe.
The euro zone debt crisis has put Italy and Spain under huge pressure in recent weeks after Greece, Ireland and Portugal had to be bailed out by the European Union and the International Monetary Fund, making the fear of a double-dip recession and another financial crisis very nerve-racking indeed. Many believe that the Thursday decline of the global stock market was only a rehearsal for a more terrible economic catastrophe to come.
Under such conditions, some believe the purchase of U.S. Treasury bonds may be a better choice for China.
Xiang Songzuo, deputy dean of the Institute for International Monetary Affairs at Renmin University, said that dealing with foreign exchange reserves is a tough issue now, and buying the U.S. Treasury bond is advisable only because there is no better choice. Compared to the European bond, the U.S. Treasury bond is much safer, he said.
"If we do not purchase U.S. Treasury bonds, what shall we buy? Are you going to let us risk buying European assets that have already been trapped in crisis, or Japan Government Bonds, or the national bonds of other countries?" asked Xiang.
Though China has showed signs of decreasing confidence in the U.S. Treasury, Chinese experts agree there are still many investment opportunities because the U.S. Treasury bond takes up 40% of the global debt market. Other government bonds do not have such large market shares, which may pose larger risks to the investor.
By the end of June 2011, China's foreign reserves had reached nearly $3.2 trillion USD, up 30% compared to the same period of last year. According to the latest statistics, by the end of May 2011, China remained the largest holder of U.S. Treasury bonds, the amount of which was about $1.16 trillion USD.
Zhou Xiaochuan, governor of the People's Bank of China, said that the management of Chinese foreign preserves will continue diversification in investment in order to reduce the potential negative impact from the global financial market.
New macro-economic data may imply policy changes
The U.S. Institute for Supply and Management's (ISM) July 2011 factory index had the worst score in two years, causing a negative impact on the global financial market which might last for a longer period.
Meanwhile, China will release its macro-economic data for July 2011 next week and make public important statistics regarding the Federal Funds Rate, which may reveal signals of policy changes that would decide financial market behavior.
Chinese micro-economic data will be released on Tuesday, August 9, including the industrial added value, investment in fixed assets, total volume of retail sales and consumer price index.
In June, China's economic data was better than market expectations. Last month, the industrial added value growth rate rose to 15.1%, and the total volume of retail sales increased to 17.7%, easing public concerns over the economic slowdown.
However, the positive trend of June may have been a flash in the pan, as the data for July is predicted to return to the previous downtrend. The CPI may see a decline of 0.1% to 0.2% in July.
