the cliff, page-5

and further the chinese are damned if they sell and damned if they dont. how can they support their ownership of US debt? sell gold? buy gold?

China increased its holdings of US treasury securities by $65.9 billion in October, consolidating its place as the No 1 holder of American debt, according to the Treasury's latest report on international capital flows.

The continual increases in US debt holdings in recent months have triggered fierce domestic debate, as the country has channeled almost a third of its $2 trillion of foreign exchange reserves into US treasury securities.

Wei Weixian, economist with the University of International Business and Economics, believes it "is a fairly acceptable option".

With US treasuries recently gaining investor favor, their yields have been on the decline; but in the long term, they are still a relatively safe investment for China, Wei said.

He also pointed out that China does not have many options to deploy its massive amounts of foreign exchange reserves.

For example, China pulled $200 billion out of its foreign exchange reserves to set up China Investment Corporation (CIC) to diversify investment, but CIC has incurred heavy losses in its investment in the US private equity firm Blackstone due to the tumbling international financial markets. CIC has since said it would be more cautious in investment abroad.

Opponents of the rising purchases of US securities cite the possibility that Washington may be financially unable to pay back the money in the future, as it has to issue a lot more debt to finance its ailing financial markets.

As China piles up more US debt, it would also be a problem to sell it later as sales would affect returns on its existing dollar assets, analysts said.