What is behind the 40% drop in China's U.S. Treasury holdings? (2024)

FAQs

Why is China dumping U.S. 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.

Key Takeaways. China invests heavily in U.S. Treasury bonds to keep its export prices lower. China focuses on export-led growth to help generate jobs. To keep its export prices low, China must keep the renminbi low compared to the U.S. dollar.

Although China's holdings have represented just under 20 percent of foreign-owned U.S. debt in the past several years, this percentage only comprises between 3 and 6 percent of total U.S. debt. China's holdings fell to $859 billion in January 2023, marking the lowest level since 2009.

China downsizes holdings of US treasury bonds to $775 billion: data - Global Times. China's holdings of US Treasury bonds fell to $775 billion in February, a drop of $22.7 billion from a month earlier, the second decrease this year, according to data released by the US Department of the Treasury on Wednesday.

If China “dumped” USA treasuries, they would take a serious monetary loss. The price of the treasuries would drop, effective raising the return for those who bought the bonds.

Many pundits blame governments whenever economies crash, but the real cause of China's slump is the long period of fast growth that piled up vulnerable and unsustainable debts. The higher they fly, the harder they fall.

How bad is it? China's debt is more than 250 percent of GDP, higher than the United States. It remains lower than Japan, the world's most indebted leading economy, but some experts say the concern is that China's debt has surged at the sort of pace that usually leads to a financial bust and economic slump.

Debt as a share of GDP has risen to about the same level as in the United States, while in dollar terms China's total debt ($47.5 trillion) is still markedly below that of the United States (close to $70 trillion). As for non-financial corporate debt, China's 28 percent share is the largest in the world.

All values are adjusted to 2023 dollars. 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).

The federal government borrows money from the public by issuing securities—bills, notes, and bonds—through the Treasury. Treasury securities are attractive to investors because they are: Backed by the full faith and credit of the United States government.

What happens if China calls in U.S. debt? ›

Consequences of Owing Debt to the Chinese

If China called in all of its U.S. holdings, the U.S. dollar would depreciate, whereas the yuan would appreciate, making Chinese goods more expensive.

Investors in Japan and China hold significant shares of U.S. public debt. Together, as of September 2022, they accounted for nearly $2 trillion, or about 8 percent of DHBP. While China's holdings of U.S. debt have declined over the past decade, Japan has slightly increased their purchases of U.S. Treasury securities.

China sold a record $53.3 billion worth of Treasurys and agency bonds in the first-quarter, Bloomberg reported. It previously unloaded US debt to prop up its yuan, which has again grown weak against a rallying dollar. The country is piling into gold, which now makes up the highest share of its reserves since 2015.

Including both private and public debt holders, the top three December 2020 national holders of American public debt are Japan ($1.2 trillion or 17.7%), China ($1.1 trillion or 15.2%), and the United Kingdom ($0.4 trillion or 6.2%).

The U.S. national debt is the sum of public debt that is held by other countries, the Federal Reserve, mutual funds, and other entities and individuals, as well as intragovernmental holdings held by Social Security, Military Retirement Fund, Medicare, and other retirement funds.

That's above already eye-catching volumes China was offloading last year. Altogether, one estimate has calculated that the country has sold $300 billion of US Treasurys between 2021 and mid-2023. China's selling grew to the point that markets worried about higher yields.

"With the Fed raising rates and the dollar going up, yield-insensitive central banks have been selling Treasuries to limit the weakening of their domestic currencies, and yield-sensitive foreign private investors have been buying Treasuries to benefit from higher yields and a rising dollar," Slok noted last month.

Experts reckon yen purchases by the Bank of Japan at the behest of the Ministry of Finance are funded by dollar deposits held by the BOJ, which are later replenished by the sale of very short-dated U.S. Treasurys or even bills.

China owns less than 3% of all outstanding Treasuries, the smallest share in 22 years, and again substantially down from the record 14% in 2011. Granted, China also likely holds Treasuries via other countries like Belgium.