[size=32]As a weapon in the business war .. Is China rid of US bonds?
- 32 Minutes Ago
The Beijing-Washington trade war has raised concern in financial markets that China will decide to use US $ 1.1 trillion in US Treasury bonds as a weapon to counter tariffs imposed by the Donald Trump administration on Chinese goods.
The decision to get rid of a huge amount of assets, in so-called "nuclear option", will most likely destabilize global financial markets, push interest rates higher, and cause tensions between the world's two largest economies to become unknown.
China has relaxed its portfolio of Treasuries for some time, but most analysts are likely to rule out a sharp cut in holdings.
There is no evidence that Beijing is seriously looking to flood markets with US bonds.
Here are some key points on China's Treasury portfolio:
How much does China have of US debt?
Ten years ago, China overtook Japan as the largest foreign holder of US government debt. According to data from the US Treasury, its holdings exceeded $ 1.12 trillion at the end of March. Japan recovered slightly by about 1.08 trillion dollars.
China's holdings peaked at the end of 2013 at about $ 1.32 trillion, and have since fallen about 15 percent.
The world's second-largest economy has about 7 percent of the current US $ 16.18 trillion in public debt, its lowest share in 14 years, and below a 14 percent peak in 2011. But its share remains the largest after the Federal Reserve ), Which has $ 2.15 trillion or 13.5 percent of the market.
Why does China have so much American religion?
As a net exporter to the United States and the rest of the world, China has the largest foreign exchange reserve, which exceeds $ 3 trillion.
Many of these reserves are denominated in US dollars and have been accumulated by trade surpluses with the United States since the early 1990s.
The US Treasury market is a natural place for many Chinese dollars, as this market is by far the largest and most liquid pool of safe assets in the world.
In addition, since the global financial crisis between 2007 and 2009, US Treasuries have yielded more yields than those of other developed economies such as Japan and Germany, another attraction.
What is the threat to the United States if China sells?
Most analysts agree that a large-scale selloff from Beijing will disrupt the US Treasury and other bond markets. A sudden shift in the supply and demand balance could push Treasury prices down and trigger higher returns that reverse the price trend, American.
Because Treasury yields are a standard consumer and corporate credit in the United States, interest rates will rise across assets, from corporate bonds to mortgages to homeowners, which will likely slow the economy.
Such a shocking move would weaken investor confidence globally in the US dollar as the world's major reserve currency.
The US Federal Reserve holds US $ 2.15 trillion in
US Treasury bonds (Reuters)
What is the risk to China if it sheds Treasuries?
Most analysts say China has not decided to sell US Treasuries because a sudden drop in prices would reduce the value of what China has left.
China's currency, the yuan, is not completely floating. Beijing is using US Treasury bonds as an important tool to maintain the yuan's stability within a target range against the dollar in particular.
Some critics claim that China uses US Treasuries and its other currency reserves to prevent yuan appreciation, increasing the appeal of its exports. At the same time, allowing the currency to depreciate significantly risks other problems such as the alienation of foreign capital.
A sharp drop in the US currency could force Beijing to defend the yuan, which could mean cutting off more of its treasury shares.
In 2016, China's holdings of US Treasuries fell sharply to around $ 200 billion from May to November of that year, with the yuan sharply lower on concerns about China's economy.
In conclusion, any negative effects on the US economy will resonate in China because the United States is the market for nearly one-fifth of China's exports.