China has long been a major buyer of US government bonds. Beijing is now increasingly selling off these papers. There are several different reasons for this. This makes it more difficult for Washington to refinance its debt.
In times of the US dollar as the global reserve currency, holding US government bonds is standard for most of the world’s central banks in order to have correspondingly large currency reserves. The People’s Republic of China, which has run huge trade and current account surpluses with the United States for decades, is no different. The People’s Bank of China (PBC) is one of the largest foreign holders of US government securities.
However, in recent years, the PBC’s currency policy has changed, also as a result of political pressure. With the internationalization of the yuan and an increasing number of trade agreements with other countries in the corresponding national currencies, the US currency is gradually playing a subordinate role.
While overseas holdings rose for the third straight month on January’s ramped-up purchases, China’s holdings fell to $859.4 billion in January. In December, these were still at 867.1 billion dollars. This is now the sixth straight month of decline. It also marks the lowest level since May 2009, according to data released by the US Treasury Department on Wednesday, according to a report by the South China Morning Post.
One reason for this is the fact that tensions between Beijing and Washington have continued to grow in recent years. Fears of financial sanctions are growing, including after those imposed on Russia for invading Ukraine. Beijing is aware that the high dollar reserves are also a sore point – but still have a certain leverage effect. If Beijing dumped all the papers on the financial markets at once, it would push the United States financially into the abyss, although the damage to the Middle Kingdom itself would be enormous.
Unlike China, Japan’s holdings of US Treasuries rose to $1.104 trillion in January compared to $1.076 trillion in December, maintaining its place as the largest foreign holder. China is the second largest non-US holder of US Treasuries. China can be expected to make further cuts in US Treasury bonds in the coming years. For the US government, however, the internationalization of its own national debt is extremely important, since the debt orgies can only be financed in this way without the Fed covering them with the “printing press”.