Moscow announced its plan to cut US treasury holdings on Wednesday. Whether China will join the band of sellers is now in question.

Analysts in Beijing agreed that for the largest creditor of Washington to say no to US Treasury bonds is not that easy.

Just a couple of days ago, China's Vice-Foreign Minister He Yafei also denied talks that China was planning to "dump" the dollar.

"China doesn't usually make random remarks on major issues like the US Treasury holdings. Once it has made an explicit promise, it keeps its word," said Zhao Xijun, a financial professor with Renmin University of China.

China replaced Japan as the largest investor in US treasury bonds in September 2008 and added US$182.9 billion in the following six months. Latest available figures showed that China held US$767.9 billion in Treasury bonds at the end of March.

Beijing's backing of US treasury bonds is not just about faith. Analysts said the options for the top holder are really not all that much.

"Technically, it's very difficult for China to dump its gigantic holdings easily. Any major sell-off move will inevitably lead to a slump in the treasury market, eroding the remaining value of China's portfolio," said Tonny Yu, a partner at Winwings Consulting Ltd and a former foreign exchange trader with Bank of China.

Ivan Chung, vice-president and senior analyst with Moody's Asia Pacific Ltd, said other marketplaces that could absorb China's huge foreign exchange reserves and simultaneously offer safe and steady returns were few and far between.

"The IMF bonds are good, but it's far too small compared to China's foreign exchange reserves. China can also invest in overseas companies and acquire resources, but the risks for overseas mergers and acquisition activity can be even higher," said Ivan.

Russia now holds about US$120 billion, or 30 percent, of its hard currency reserves in US treasuries, while US$700 billion of China's nearly US$2 trillion in reserves have been invested in US Treasury securities.

A Russian central bank official on Wednesday said his bank would reduce US Treasury holdings to invest in the IMF notes instead and would redirect up to $10 billion to the IMF. Industry experts said Russia's move stems partly due to the lack of other foreign currency reserves.

Experts pointed out Russia's foreign exchange reserves decreased significantly with the drop in prices of gold and oil, the country's two main export commodities.

"So, Russia would sell some of its US$140 billion of treasuries to make room for the purchase of the IMF bonds," said Alexei Ulyukayev, first deputy chairman of Bank Rossii.

(China Daily June 12, 2009)