Nation's US debt holdings increase in May

China increased its holdings of US government securities in May, data from the US Treasury Department showed on Wednesday.

The Treasury International Capital report showed that China acquired $7.7 billion in US securities, up 0.6 percent from April, bringing the country's total to $1.27 trillion.

It marked the first time China purchased US securities since January. It purchased a record amount of securities in November, and then began to reduce its holdings.

Japan remained the US' second-largest creditor, adding $10.4 billion and bringing its total to $1.22 trillion.

Foreign countries were net purchasers of long-term US securities, buying $19.4 billion. In April, they were net sellers, reducing holdings by $24.2 billion.

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The total of all foreign acquisitions of long-term securities, short-term securities and banking flows in May was a net inflow of $35.5 billion, the Treasury said.

Brazil, where Chinese President Xi Jinping is attending the sixth BRICS summit, picked up $4.3 billion in reserves, a much larger amount than in previous months. Brazil now has $250.1 billion in US securities, the largest amount since its $252.9 billion total in August of last year.

Cheng Chen, US rates strategist at TD Securities, said that China's debt activity was in line with expectations.

Wayne Morrison, a specialist in macroeconomic policy at the US Congressional Research Service who has written about China's US securities holdings, said that China's total holdings are "still below their historic highs, so this is not a big deal per se".

Kent Troutman, research analyst with the Washington-based Peterson Institute for International Economics, said the Treasury's data mirrors activity shown in the Chinese central bank's recent release on the country's foreign exchange reserve accumulation, which reflects activity from the second quarter.

China's reserves increased about $50 billion and with the trade balance bouncing back and an increase in foreign direct investment, appreciation pressure is rising.

"From the rise in the foreign currency reserves and the rise in holdings, we can surmise that the People's Bank of China has been intervening in the foreign exchange market, albeit at lower levels than previous years," he said.

"Overall, the (foreign exchange) numbers were a disappointment to many who thought that, after months of claiming that the recent weakness in the renminbi was market-driven - and several data points seemingly corroborating that - the PBOC had indeed ceased its intervention," said Troutman.

As of June 30, China's foreign reserves totaled $3.99 trillion, up from $3.948 trillion as of the end of the first quarter.

During last week's two-day Strategic and Economic Dialogue in China, US Treasury Secretary Jack Lew pressed China to strengthen the value of the yuan. PBOC Governor Zhou Xiaochuan said that the central bank will gradually reduce intervention as "conditions permit".

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