China's holdings of US government debt have fallen to their lowest level since February , following a fifth successive month of net US Treasury sales in September, according to a US government report. Analysts cautioned that the reduction in China's US Treasury holdings was not necessarily a sign it was reducing its overall US dollar-denominated securities holdings, since it could buy other assets such as stocks or corporate bonds instead.
Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China. Nevertheless, while reducing its holdings of US debt , China has been on a buying spree of Japanese government bonds this year. According to data from the Japanese Ministry of Finance, China snapped up China lost its status as the largest foreign holder of US Treasury securities to Japan more than a year ago, in the midst of a bitter trade war between the two superpowers that some speculate could descend into an all-out financial war.
This could be a move to insulate itself from tensions with Washington , including the risks of US financial sanctions and the potential seizure of Chinese assets in the US, according to ongoing discussions among Chinese academics.
China does not publish the composition of its current foreign exchange reserves, nor a detailed account of how much US dollar-denominated assets it owns, as it considers the information to be a state secret. The latest available official data showed that the share of US dollar assets in China's foreign exchange reserves dropped to 58 per cent at the end of from 79 per cent in How the US uses the dollar payments system to impose sanctions on a global scale.
Guan Tao, chief global economist at Bank of China Securities, said it would be inappropriate to interpret the reduction of foreign investors' holdings of US debt as a decline in the status of the US dollar. Foreign investors may reduce their investments in US government debt but increase the allocation of other US-based financial assets.
And while the Chinese government may be a net seller of US dollar assets, the private sector may still be net purchasers, Guan said. Meanwhile, global investors are reconfiguring their global portfolios to give Chinese securities a much greater role, with China set to be the only major economy to report positive economic growth for Global Economics. Global Politics. Global Economics Global Politics.
Home Economics. By Mish. Most analysts agree that large-scale selling by Beijing would disrupt the Treasury market and other markets. An abrupt shift in the balance of supply and demand could drive down Treasury prices, and drive up their yields, which move in the opposition direction to prices.
That would cause a spike in borrowing costs for the U. Also, because Treasury yields are a benchmark for U. Beijing uses its Treasury holdings as a key tool to stabilize the yuan within a targeted range, against the dollar in particular. Some critics have alleged China uses Treasuries and its other currency reserves to hold down the yuan, making its exports more attractive.
China's continuous purchase of U. It continues to raise concerns about the U. The reality, however, is not as bleak as it may seem, for this type of economic arrangement is actually a win-win for both nations. Treasury Direct.
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Chinese Economics. Self-Correcting Currency Flow. China's Need for a Weak Renminbi. Impact of China Buying U. USD as a Reserve Currency. Risk Perspective for U. Risk Perspective for China. The Bottom Line. Key Takeaways China invests heavily in U. Treasury bonds to keep its export prices lower. China focuses on export-led growth to help generate jobs.
China chooses U. Treasuries to invest in, versus real estate, stocks, and other countries' debt, because of their safety and stability. Although there are worries of China selling off U. Article Sources. Investopedia requires writers to use primary sources to support their work.
These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.
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