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China is top US debt holder

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China remained the top holder in the ballooning US debt last year, revised data showed, after earlier indications it had been eclipsed by Japan drew speculation about Beijing’s motives.

Revised data released late Friday by the Treasury Department indicated that while China had cut back on its bond holdings, the level was still well above that of Japan.

China held 894.8 billion dollars in Treasury securities at the end of December, more than the 755 billion dollars estimated earlier in the month. But it was still down from a revised 929.0 billion dollars in November.

Japan in December held 765.7 billion dollars in Treasury bonds, slightly down from the previous estimate of 769 billion dollars.

The sharp revision came as the Treasury Department looked at Chinese holdings in US Treasuries in third markets such as Britain and Hong Kong, which were not picked up by the earlier estimates.

China’s massive holdings in US Treasuries have set off alarm bells in some circles in Washington, with lawmakers warning that the soaring US debt was becoming a political as well as an economic risk.

China has warned of retaliation against the United States after President Barack Obama defied Beijing by approving an arms package to rival Taiwan and meeting Tibet’s exiled spiritual leader the Dalai Lama.

But many US analysts argue that any threat by China to shift its reserves out of US government paper is just bluster as the emerging Asian power needs to find a place for its foreign reserve holdings.

A serious move away from US Treasuries would trigger a fall in bond prices, ultimately hurting Beijing.

Some experts say that buying bonds more quietly in third countries could serve to lessen criticism in China that the country is investing too much in low-yielding US bonds.

In Beijing on Saturday, Chinese Premier Wen Jiabao said he hoped 2010 would be a peaceful year for trade and economic relations between the United States and China, the world’s largest developed and developing economies.

The total value of foreign holdings of US securities as of the end of June 2009 was 9.7 trillion dollars, down from 10.3 trillion a year earlier, according to the revised data.

Source: AFP

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