http://www.chinastakes.com/story.aspx?id=978 China is increasing holding of short-term US treasury bills and reducing long-term bills out of the concern over capital outflow and more bond issuance brought by increasing deficit due to ObamaÂ¡Â¦s economic rescue plan. China bought $6.185 billion of US treasury bills but sold $15.34 billion in November. Except for June, when China slightly reduced its holding by $300 million, it had been increasing its holding of US mid and long-term bills during January and October 2008. Its net increase reached $18.3 billion in September, a critical moment for the US as the financial crisis deepened. Since then it has become the biggest creditor of the US. The global financial market worsened since the fourth quarter of last year, and capital was looking for risk shelters. China followed suit by making adjustment to the term structure of its holding of the US treasury bills. It successively sold some short-term bills in the first quarter of 2008, but began to buy in the fourth quarter. At the end of November China already held $681.9 billion US treasury bills, and in November alone it bought $29 billion, which means China bought over $38 billion short-term treasury bills in November. Moreover, China has also begun to increase its holding of American assets with higher risk. Last November, China increased its holding of US mid and long-term corporate bonds by $170 million. During September and November, China bought US shares worth $49 million, $130 million, and $710 million respectively. However, China is still selling off long-term government-backed institution bonds. Brad Setser, researcher at the Council of Foreign Relations found that China has sold $3.1 billion of long-term US treasury bills and $5 billion short-term dollar institution bonds. China is unlikely to exchange its dollar assets for assets in other currencies, but might swap long-term bonds for short-term bonds. The market worries that the USD appreciation and price hike of US treasury bills since the third quarter of last year was largely due to that capital flew back to the US to seek risk shelters, especially to the US treasury bonds market since last September. Therefore, with the market stabilizing, the price of US treasury bonds may fall back. Obama will expand AmericaÂ¡Â¦s economic stimulus plan and the scale of the US treasury bonds after resuming the office. Experts believe China probably begin to sell the US long-term treasury bills concerning more issuance in the future. As the price of the US treasury bills may decline, it is wise to sell mid and long-term bills now. Comparatively, risk of short-term treasury bills seems more controllable. ChinaÂ¡Â¦s capital outflow in the fourth quarter last year was estimated at about $160 billion. China has about $200-300 billion cash in its foreign exchange reserve of over $1.9 trillion. More future capital outflow may force ChinaÂ¡Â¦s central bank to sell its dollar assets to meet domestic demand of cash exchange, and this will lead the central bank to adjust its portfolio of foreign exchange reserve by selling long-term treasury bills and buying short-term ones.