HomeAttacks on U.S.China is Massively Selling Off U.S. Treasury Bonds

China is Massively Selling Off U.S. Treasury Bonds

Published on

spot_img

In recent months, China has captured global attention by making substantial sales of U.S. assets, particularly long-dated Treasurys, sparking discussions about its motives and implications for both China and the United States. These actions come amid a backdrop of a weakening yuan and reports of Chinese authorities intervening to support their currency. However, a closer examination reveals that these moves may not be as ominous as they seem, and China’s motivations are rooted in economic realities rather than geopolitical maneuvers.

Chinese investors sold U.S. assets at an unprecedented pace in August, with nearly $15 billion in long-dated Treasurys and over $5 billion in U.S. stocks offloaded. The total amounted to $21.1 billion in U.S. assets sold, including $1.3 billion in mortgage bonds—a recent preference over Treasurys. This selling frenzy coincides with the yuan nearing its weakest level against the U.S. dollar since late 2007. Reports also emerged that Chinese authorities instructed state-controlled banks to intervene to support the yuan, a move that typically involves selling dollar-denominated assets and purchasing yuan.

Since early 2022, China has sold $235 billion in Treasurys, raising concerns about the potential impact on global financial markets. However, one economist argues that these statistics don’t tell the full story. China’s overall holdings of Treasurys and mortgage bonds have remained relatively stable over the past eight years, as they have increasingly acquired holdings through intermediaries not reflected in U.S. data.

Foreign buyers, on the other hand, acquired $134.4 billion in U.S. assets in August, indicating net inflows into both Treasurys and stocks. International investors also bought a net total of $61.3 billion in long-term U.S. securities, benefiting from rising yields on 10-year and 30-year Treasurys, which have reached their highest levels in 16 years.

Contrary to some media reports, China’s recent actions may not pose a significant threat to the U.S. financial system. Even at its peak, China’s holdings of U.S. Treasury bonds amounted to around $100 billion, a small fraction of the total U.S. Treasury debt of over $32 trillion. China’s actions in selling a portion of its holdings are unlikely to create major disruptions in global financial markets.

So, what is driving China to divest its U.S. assets? One plausible explanation is the need for funds. Although China still maintains a trade surplus, it has diminished relative to its growing needs. Beijing’s ambitious Belt and Road initiative and other foreign ventures have drained its surplus, while accumulating substantial debts denominated in foreign currencies, much of which will mature in the coming months. These factors, coupled with the necessity of importing essential goods like oil, computer chips, and food, have put pressure on China’s foreign exchange reserves.

Moreover, China may be acknowledging the limitations of its previous economic model. Historically, China’s low-cost labor attracted foreign investments and allowed its products to dominate global markets, with the United States as a significant consumer. China indirectly lent the U.S. money through its purchases of U.S. Treasury bonds to support the American trade deficit. However, China’s rising wages, pandemic-related concerns, and increased authoritarianism have disrupted this model. As China seeks to reshape its economic strategy, lending to the U.S. to buy Chinese exports may no longer be a viable option.

In conclusion, while China’s recent sales of U.S. assets have raised eyebrows and sparked concerns, a deeper analysis suggests that they are driven by economic realities rather than geopolitical motives. China’s need for liquidity and the evolution of its economic model are likely behind these actions. The impact on the U.S. financial system appears limited, and the world may witness further sales without the dramatic repercussions that some had feared. China’s economic transformation and its implications for the global economy remain a complex and evolving story.

Editor’s Note: This is interesting because a lot of people speculate about what would happen if China sold off its U.S. debt, essentially calling in that debt. But it doesn’t appear to be the devastating war-like event that some folks have worried about. But then again, would we know? And could they be selling off these instruments and getting ready to buy others at the higher interest rate? Are they trying to force a higher interest rate? Is our Fed dealing with this frantically or taking it in stride? I’m suspecting there is more to this. If we find out anything, we will let you know.

Latest articles

China’s Chat ‘Xi’PT Designed for Xi’s Rendition of Socialist Propaganda

China has introduced a new player that blends cutting-edge technology with a heavy dose...

China’s Punishment Drills: Why Taiwan is Under Fire

In a significant escalation of tensions, China has launched a series of "punishment" military...

UK Defence Minister: China to Supply Lethal Aid to Russia

In a significant and alarming revelation, UK Defence Minister Grant Shapps has accused China...

The Hidden Hand Exposed: China is Funding Anti-Israel Protests on American College Campuses

In recent weeks, a disturbing report has surfaced, revealing the deep involvement of the...

More like this

China’s Chat ‘Xi’PT Designed for Xi’s Rendition of Socialist Propaganda

China has introduced a new player that blends cutting-edge technology with a heavy dose...

China’s Punishment Drills: Why Taiwan is Under Fire

In a significant escalation of tensions, China has launched a series of "punishment" military...

UK Defence Minister: China to Supply Lethal Aid to Russia

In a significant and alarming revelation, UK Defence Minister Grant Shapps has accused China...