In the monthly U.S. Treasury report this week, it was announced that China had sold $34.2 billion of Treasuries in December (or allowed short-term ones to run off), making Japan once again the largest holder of U.S. Treasuries.

The battle between China and Japan for the title of largest holder of this dubious asset is not very interesting. What’s more interesting is the question of where China is instead opting to invest. After all, $34.2 billion is a fair chunk of change, and China’s overall reserves are growing – not shrinking – and now total $2.4 trillion.

The People’s Bank of China usually keeps its holdings a carefully guarded secret, much more so than for most central banks – our knowledge of its holdings of Treasuries comes from U.S. data, not from China.  We do, however, have some evidence about the Chinese government’s investment thinking, thanks to the holdings of China Investment Corp., the country’s $200 billion sovereign wealth fund.

….read more HERE.