May 27, 2010 (Chinavestor) China is reviewing its holdings of Eurozone-issued debt as the region struggles with a plunging Euro and a sovereign debt crisis that threatens to hinder the global economic recovery. China's State Administration of Foreign Exchange has been meeting with bankers to discuss China's exposure to European debt, according to the Financial Times.
China's State Administration of Foreign Exchange owns about $630 billion in European debt and is worried about the economic climate in the so-called PIIGS nations (Portugal, Italy, Ireland, Greece and Spain). Analysts are saying that China is apprehensive about purchasing more European bonds.
China is also the largest holder of U.S. Treasuries. China has been trying to diversify its currency holdings in recent years to reduce exposure to the U.S. Dollar and a drastic reduction in Euro-denominated holdings would represent a shift in recent policy.
China's State Administration of Foreign Exchange rarely cuts positions in drastic fashion, the FT said. China already has significant exposure to Europe's financial woes because Europe is a primary end market for Chinese exports. Credit Suisse said a 20% drop in exports to Europe would pare China's GDP by 1%.