China has offloaded USD 22.7 billion US treasury bills recently over concerns over security and a further delay to expected interest rate cuts by the American Federal Reserve, amidst its intensified strategic rivalry with Washington.
The world's second-largest economy offloaded USD 22.7 billion of the bills in February, with its total holdings adding up to USD 775 billion as of the end of that month, the Hong Kong-based South China Morning Post quoted figures released by the US Treasury Department on Wednesday.
China's forex reserves, the world's highest, totalled USD 3.2457 trillion last month, according to the state-run Xinhua news agency.
For years US treasury bills were traditionally China's preferred choice to invest its forex reserves but in recent years Beijing steadily diversified its reserves as its strategic rivalry with Washington intensified.
Also read | The US-China truce: Where India needs to assess the changes in great power relations
“China's overseas investment has been concentrated on US Treasuries in the past, [but] there is space for the Chinese government to further cut back its holdings in the future,” Zhao Xijun, a finance professor at Renmin University in Beijing said.
"Beijing is concerned about the impending rate reductions in the US, which will affect returns,” he told the Post.
Also read | How China and the US first established diplomatic ties 45 years ago, why Taiwan became a sticking point
Following a speech from Federal Reserve chairman Jerome Powell on Tuesday, economists now expect a further delay of cuts to the US benchmark rate, with reductions not predicted until September or even as late as next year.
Beijing, vigilant in the protection of its overseas assets, has slashed its holdings of US Treasury bills by 25 per cent since early 2021 to the tune of USD 280 billion.
Its position hit a 14-year low of USD 769.6 billion in October 2023, a decline commonly attributed to a conscious effort to diversify its holdings, the Post report said.
Zhao noted that shifts in overseas investments are highly dependent on context, mentioning Beijing has increased its investments in gold – a commodity noted for its reliability – after an analysis of the external environment.
However, observers say China's moves to diversify its assets are in keeping with rapid changes in geopolitics and its erratic relations with the US.
Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis, said further sell-offs are possible even though US Treasury Secretary Janet Yellen brought up the issue with her Chinese counterparts during an official visit to Beijing earlier this month.
"I think the minute she said that the US wouldn't take ‘anything off the table' in response to China's overcapacity, [Beijing] wanted to give a signal that they were serious about dumping US Treasuries,” she said.
Officials from China and the US met in Washington on Tuesday to exchange their views on financial stability, regulatory cooperation, cross-border payment and combating money laundering as part of the recently established bilateral financial working group.
However, no details were provided.
Garcia-Herrero noted that the combined holdings of Europe and Japan are bigger than China's, meaning the US “could mitigate the sell-off” without “a major impact”, the Post reported.
FAQs
China has offloaded USD 22.7 billion US treasury bills recently over concerns over security and a further delay to expected interest rate cuts by the American Federal Reserve, amidst its intensified strategic rivalry with Washington.
Is China dumping US treasury bonds? ›
Beijing offloaded a total of $53.3 billion of Treasuries and agency bonds combined in the first quarter, according to calculations based on the latest data from the US Department of the Treasury.
What happens if China dumps US dollars? ›
If China (or any other nation that has a trade surplus with the U.S.) stops buying U.S. Treasuries or even starts dumping its U.S. forex reserves, its trade surplus would become a trade deficit—something which no export-oriented economy would want, as they would be worse off as a result.
How much of US Treasury bills are owned by China? ›
Though China owns a large amount of U.S. debt, it isn't the United States's largest creditor. The greatest amount of U.S. debt is owned by the U.S. government, while the largest foreign creditor is Japan. China owns around 2.6% of U.S. debt, which it buys because the Chinese yuan is pegged to the dollar.
Who is selling US treasury bonds? ›
TreasuryDirect.gov is the one and only place to electronically buy and redeem U.S. Savings Bonds. We also offer electronic sales and auctions of other U.S.-backed investments to the general public, financial professionals, and state and local governments.
How much does the United States owe China? ›
As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).
Who holds the US debt? ›
Who owns the U.S. debt? There are two basic categories of debt owners: 1) the public, which includes foreign investors and domestic investors and, 2) federal accounts, also known as "intragovernmental holdings." Each category is explained below.
What happens if the American dollar becomes worthless? ›
If the U.S. dollar collapses: The cost of imports will become more expensive. The government will not be able to borrow at current rates, resulting in a deficit that will need to be filled by increasing taxes or printing money.
Who owns most of China's debt? ›
[2] A report by the credit rating agency S&P Global in 2022 estimated that 79 per cent of corporate debt in China was owed by SOEs (the IMF does not break down the proportion of debt owed by SOEs).
Does China want to replace the U.S. dollar? ›
China's Strategy Moving Forward
In the past, Chinese authorities believed a global alternative to the dollar system was possible. However, today, China focuses almost exclusively on promoting the yuan through trade.
While Chinese ownership of U.S. land has been a hot topic among lawmakers — even becoming the center of a Montana Senate race this year — China only had a stake in 383,935 acres of U.S. land as of 2021, which is less than 1% of all foreign-held land.
Who owns the most US Treasury bills? ›
The largest holder of U.S. debt is the U.S government. Which agencies own the most Treasury notes, bills, and bonds? Social Security, by a long shot. The U.S. Treasury publishes this information in its monthly Treasury statement.
Who is buying US debt now? ›
The international buying appetite has been falling over the past 10 years (dropping from 40% to the current 30%). The major international owners of US debt include Japan ($1.1T), China, UK, Belgium, Switzerland, Cayman Islands and smaller amounts from the rest of the world.
Why is China dumping US treasuries? ›
China has offloaded USD 22.7 billion US treasury bills recently over concerns over security and a further delay to expected interest rate cuts by the American Federal Reserve, amidst its intensified strategic rivalry with Washington.
What happens if China sells U.S. debt? ›
China could raise US interest rates for a while by selling all its US dollar holdings. Selling lots of bonds drives bond prices down, which means their return rises and thus interest rates rise. And China could cause the dollar to depreciate for a while by pulling all those funds out of the dollar.
Who owns over 70% of the U.S. debt? ›
Who owns the most U.S. debt? Around 70 percent of U.S. debt is held by domestic financial actors and institutions in the United States. U.S. Treasuries represent a convenient, liquid, low-risk store of value.
Can US Treasury bonds lose money? ›
Also, T-bonds are backed by the full faith and credit of the U.S. federal government, meaning investors won't lose their initial investment. However, since younger investors have a longer time horizon, they typically opt for investments that offer long-term growth.
How much does China hold of US Treasuries data? ›
China Holdings of US Treasury Securities data was reported at 775.000 USD bn in Feb 2024. This records a decrease from the previous number of 797.700 USD bn for Jan 2024. China Holdings of US Treasury Securities data is updated monthly, averaging 945.850 USD bn from Mar 2000 (Median) to Feb 2024, with 288 observations.
What happens to US Treasury bonds? ›
We sell Treasury Bonds for a term of either 20 or 30 years. Bonds pay a fixed rate of interest every six months until they mature. You can hold a bond until it matures or sell it before it matures.
What is the downside of US Treasury bonds? ›
But while they are lauded for their security and reliability, potential drawbacks such as interest rate risk, low returns and inflation risk must be carefully considered. If you're interested in investing in Treasury bonds or have other questions about your portfolio, consider speaking with a financial advisor.
