Jamil Anderlini’s Monday FT story — which obviously drew heavily on my work — attracted a fair amount of attention. Particularly in China. Americans are more focused on AIG’s losses than China’s equity market exposure.
Two specific questions have come up a lot, both in the comments section here and in various other conversations, namely, why is it likely that SAFE holds most of China’s US equity portfolio, and why did I assume that SAFE’s non-US equity portfolio was roughly equal in size to its US equity portfolio?
Both are fair questions.
The evidence that SAFE accounts for the majority of China’s US purchases is overwhelming. SAFE own data on China’s net international investment position shows that at the end of 2007, private Chinese investors held less than $20 billion of foreign equities. And that would include private Chinese holdings of non-US equities. Chinese portfolio equity purchases — according to the China’s balance of payments data — in the first half of 2008 were also modest. Consequently, it is hard to see how private Chinese investors could account for most of the $100 billion Chinese portfolio in the US survey data.
Moreover, we know from the US balance of payments data that private Chinese investors have been selling US securities other than Treasuries for the last two years. Private Chinese investors (i.e. the state banks) were significant buyers of US securities other than Treasuries (likely various US corporate bonds and some agencies) in 2005 and 2006, but they started selling after the subprime crisis.
The BEA’s data is here.