Caution urged on dollar assets
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"The data suggest that China could be more actively diversifying its currency reserves away from US Treasuries," said Jing Ulrich, managing director and chairman of China Equities and Commodities, J.P. Morgan. "We expect the country might be marginally shifting some exposure to other currencies."
While it is not clear that the selling is part of a consistent strategy, the country should keep a "considerable" proportion of dollar assets in its foreign exchange reserves, said Sun Lijian, economist with the Fudan University.
"China should not overly reduce its dollar assets, given their high market liquidity," he said. Dollar assets are relatively easy to sell if China needs quick money to safeguard its financial stability, he said.
More than a decade after the 1997-98 Asian financial crisis, there are increasing suggestions that China use its growing reserves to buy resources, technologies and attract high-caliber professionals from abroad. While they are important, Sun said, China must have enough reserves available for protecting its financial stability.
Asia was dealt a heavy blow during the financial crisis when international speculators attacked the currencies of some economies which did not have adequate reserves, plunging them into a spiral of currency depreciation, economic contraction and social chaos.
Since then, Asian countries have paid great attention to increasing foreign exchange reserves; and now, they account for seven of the top 10 nations.
As China's reserves grow, however, concerns are also growing that they could invite speculative capital inflows, especially when the country's economic recovery is quicker than in other regions.
Once the capital flows out of the country, there will be shocks to the domestic market and the economy, Sun warned.
To address the problem, China must quicken its pace of balancing domestic demand and exports as it strives to stimulate consumption as a major engine of economic growth, said Dong.
