China increases US Treasury holdings

CHINA, the biggest buyer of United States Treasury debt, increased its holdings in May for the second straight month, after five months of declines.

China boosted its holdings by US$7.3 billion to US$1.16 trillion, the Treasury Department said yesterday.

Total foreign holdings of Treasury securities rose 0.6 percent to US$4.51 trillion.

The report shows that foreign investors didn't lose their appetite for US government debt in May, even though the US reached its US$14.3 trillion borrowing limit that month.

The limit is the total amount the government can borrow to finance its operations. Since reaching the limit on May 16, the Treasury has relied on accounting maneuvers to avoid running out of cash. But Treasury says it would have exhausted those maneuvers by August 2.

If the borrowing limit isn't raised by then, Treasury Secretary Timothy Geithner says, the government will default on its obligations.

Congressional Republicans have demanded large spending cuts as a condition for voting in favor of raising the limit. President Barack Obama has pushed to include some tax increases on wealthier Americans, which Republicans have adamantly opposed.

The standoff has persisted for weeks, spurring warnings from Federal Reserve Chairman Ben Bernanke and leading investors on Wall Street that a default would be disastrous for the US economy.

Republicans in the House and Senate are taking different tacks this week. Senate Minority Leader Mitch McConnell has proposed allowing Obama to raise the debt limit unilaterally, though Congress could vote to disapprove the increase.

House Republicans are pushing legislation that would cut spending, exclude tax rises, and add a balanced-budget amendment to the Constitution.

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