This move to cut the US debt holdings indicated an attempt by the People's Bank of China (PBOC) to increase its cash holdings of dollars in order to shore up the value of the yuan.
The yuan has been faced with increasing downward pressure as investors sold the currency seeking a safe haven in the US dollar amid a grim outlook for the global economy.
China held a total of US$ 1,134 billion of US Treasury debt as of October 2011. According to the US Treasury Department, China accounted for approximately 24% of total foreign holdings of US debt. Despite this latest cut, China remains the largest foreign holder of US treasuries.
Analysts advocate China should continue to accelerate the diversification of its US$ 3.2 trillion foreign-exchange reserves, amid growing global financial uncertainty. Currently, about one-third of China's foreign-exchange reserves is invested in US Treasury bonds.
The PBOC has been reported it's planning to create a fund worth US$ 300 billion to invest the country's foreign-exchange reserves in the US and European markets. The fund will reportedly seek to invest in real assets and company shares, rather than government securities.
Gao Xiqing, vice-chairman of China Investment Corp, the country's sovereign wealth fund, said recently that the fund is actively looking for investment opportunities in infrastructure projects in countries including Britain, the US, and Brazil.
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