Why is China Getting a Special Deal to Buy U.S. Treasuries?

In an unprecedented move, in June 2011 the U.S. Treasury Department granted the Chinese government direct-bidder status to purchase U.S. Treasuries direct from the U.S. government, reports Reuters. All other central banks must purchase U.S. Treasuries through primary dealers on Wall Street, which then place bids on their behalf at Treasury auctions.

The People’s Bank of China holds roughly $1.2 trillion in U.S. debt, more than any other entity, and it is now the first foreign government with direct computer access to the U.S. government Treasury auction process. China, however, must sell U.S. Treasuries on the open market.

“It’s a big deal because the Chinese are getting very special treatment,” says Gordon Chang, Forbes columnist and author of the Coming Collapse of China, in an email to The Daily Ticker.

This special treatment does have the potential to save the Chinese government money, but not in transaction and commission costs because primary dealers are prohibited from charging its bidding customers fees. However, China could getting a better deal by keeping its purchases from Wall Street secret.

Not only is China the largest U.S. creditor, it is the largest exporter to this country. The U.S.-China trade deficit widened to $51.8 billion in March up from $45.8 billion in February, growing at the fastest pace in the last ten months, according to the U.S. Commerce Department. . .

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