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00:00WANTED TO TALK TO WHEN I SAW THE CHINA NEWS. I APPRECIATE YOU COMING ON. LET ' S STIPULATE AND SAY CHINA WANTED TO REDUCE ITS EXPOSURE TO TREASURY, THEY DIDN ' T WANT TO BUY ANY MORE, DO THEY HAVE THE MECHANISM OR FLEXIBILITY TO CHANGE THEIR OWN PORTFOLIO. > > YES. CHINA DOESN ' T JUST HOLD TREASURIES AS PART OF THE US PORTFOLIO. IF IT WANTED TO, IT COULD SHIFT TOWARDS AGENCIES, IT HAS DONE THAT IN THE PAST. WOULD IT HAVE AN IMPACT ON THE US, PROBABLY NOT. COULD CHINA HOLD MORE BANK DEPOSITS AND FEWER TREASURIES, YES. COULD CHINA SELL TREASURIES AND BUY EQUITIES, YES. COULD CHINA SELL US ASSETS AND MOVE INTO ANOTHER CURRENCY, YES, THAT IS HARD. THE CHINESE PURCHASES WOULD TEND TO PUSH UP WHATEVER CURRENCY CHINA IS BUYING. THERE AREN ' T THAT MANY BOND MARKET WHICH COULD ABSORB A MEANINGFUL AMOUNT OF FLOW. > > JUST TO BE CLEAR, THEY COULD DIVERSIFY OUTSIDE OF TREASURY, IT WOULD BE HARDER FOR CHINA TO DIVERSIFY AWAY FROM DOLLAR DENOMINATED ASSETS. > > YES, IF YOU THINK OF THE COMPARATIVE SIZE OF THE AGENCY MARKET. COMPARED TO THE SIZE OF THE AVAILABLE STOCK OF BOOMS. NOW THAT THE E.C.B. IS REDUCING THE SIGN. THE MECHANICS, AND THE FLOWS ARE EASIER. AS LONG AS YOU ARE SHIFTING WITHIN THE US THERE ' S NO CURRENCY EFFECT. > > WHAT WOULD BE THE REASONS CHINA WOULD WANT TO REDUCE TREASURY HOLD I, YOU MENTIONED CHINA SOLD A LOT OF TREASURIES, BUT BOUGHT IN 2017 ON A MODEST SCALE. IF THEY WERE TO START PAIRING SOME OF THE HOLDINGS, WHAT WOULD DRIVE THEM TO THAT. WHAT WOULD PUSH THEM IN THAT DIRECTION. > > THE REASON WHY CHINA IS SELLING IN 2015/16. RESERVES WERE FOLLOWING. AND IT NEEDED LIQUIDITY. IT NEEDED TO COME UP WITH CASH, AND SOLD TREASURIES. IN MY VIEW, IN ROUGH PROPORTION TO ITSHOLDINGS. WHAT COULD DRIVE CHINA IT RESUME SALES, THE OBVIOUS REASON WOULD BE THAT RESERVES STARTED TO FALL. CAPITAL OUTFALLS PICKED UP. WHAT WE HAVE SEEN IS RESERVES ARE BASICALLY STABLE. I THINK THAT ' S WHY CHINA WAS BUYING LAST YEAR. PERHAPS THEY REDUCED THE LIQUID TREASURY A LITTLE LOWER THAN THEY WANTED TO DURING THE PEAK OF PRESSURE, AND WITH THE STABILIZATION OF THE EUAN WITH THE INCREASE IN CHINA ' S RESERVES, THEY BROUGHT A FEW TREASURIES, IT SEEMS LIKE CAPITAL FLOWS ARE ROUGHLY BALANCED. IT ' S HARD TO SEE WHY THAT WOULD DRIVE TREASURY SALES GOING FORWARD. THEN YOU ARE LEFT ARE, OKAY, PERHAPS CHINA MIGHT WANT TO SEND A MESSAGE TO THE US, REMINDING THE US THAT IT ' S THE UNITED STATES BIGGEST SINGLE CREDITOR.

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China Disputes Report and Says It's Still Buying Treasuries

Brad Setser, Council on Foreign Relations Senior Fellow, discusses China's plans to buy Treasuries. He speaks with Joe Weisenthatl and Scarlet Fu on "Bloomberg's What'd You Miss?" (Source: Bloomberg)

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