Reuters Investigates

Insight and investigations from our expert reporters

Intrigue in China’s U.S. Treasury buying

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A Reuters exclusive today describes a method China used recently to hide some of its U.S. Treasury purchases – “US caught China buying more Treasuries than disclosed.”

Treasury officials said they were simply modernizing outdated procedures two years ago when they revamped the rules for participating in government bond auctions.

The real reason for the change, a Reuters investigation has found, was more serious: The Treasury concluded that China was buying much more in U.S. debt than was being disclosed, potentially in violation of auction rules, and it wanted to bring those purchases into the open – all without ruffling feathers in Beijing.

Stephen Culp, Reuters graphics editor, came up with a handy visual explanation for the practice that allowed China to mask billions of dollars worth of U.S. debt purchases at auctions. China placed its bids informally through primary dealers, who then placed their bids at Treasury auctions without naming China as a customer. The Treasury outlawed the practice in June, 2009, but kept the reason for the rule-change under wraps.

China’s U.S. debt holdings make it a powerful negotiator

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Worrying about the power China has over the U.S. as America’s largest foreign creditor has become a national pastime. It’s a bipartisan issue in Congress and a favorite subject among pundits lamenting the decline in U.S. influence around the world. But could China really use its Treasury purchases to shape U.S. policy? Diplomatic cables released by WikiLeaks and obtained by Reuters suggest that has already happened.

Emily Flitter’s special report outlines a diplomatic flare-up between the two superpowers following the U.S. financial crisis. Chinese officials said they were worried about the safety of their U.S. investments. U.S. diplomats worked hard to ease the tensions, but the conflict ultimately led to the request of a personal favor by a top Chinese money manager in a meeting with U.S. Treasury Secretary Timothy Geithner.