The Treasury released the details of its survey of foreign portfolio investment earlier today.
Foreign purchases of mutual funds — including, apparently, money market funds — are counted as equities in the US data. So there was a risk that the large rise in China’s equity holdings that I noted earlier (total equity holdings reached $99.548 billion) would stem from a big rise in China’s investment in US money market funds.
That though didn’t turn out to be the case. Plain old stocks account for $97.645 billion of the $99.548 billion total. “Funds” only accounted for $1.743 billion of the total.
That though raises another issue — $1.743 billion seems far too low. Remember, the CIC had $5 billion or so with Reserve Primary in the fall. It could have bought into Reserve Primary between June and September I guess.
But the odds are that many US money market funds are set in a way so that foreign investment in the funds stays legally offshore — and thus inflows into such funds never show up in the US data. The CIC in particular seems to have made heavy use of money market funds. Thus one potential explanation for the relatively low share of China’s reserve and foreign asset growth that showed up in the US data from mid-2007 to mid-2008 is greater use of money markets funds and other private fund managers.
Originally published at the Council on Foreign Relations blog and reproduced here with the author’s permission.