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China Slashes U.S. Treasury Holdings: Set to Fall Behind UK

Daniel Kim Views  

The American and Chinese flags are displayed side by side. AP Yonhap News

As China cuts its holdings of U.S. Treasuries, it is expected to drop to the third-largest holder of U.S. Treasuries after the United Kingdom.

According to United News on the 18th, the U.S. Treasury Department reported on the 17th (local time) that as of the end of last February, the Chinese government’s holdings of U.S. Treasuries had decreased by $22.7 billion to $775 billion compared to the previous month, as reported by China’s state-controlled media Global Times and Hong Kong’s South China Morning Post (SCMP). In January, China also cut its holdings of U.S. Treasuries by $18.6 billion.

China has cut its holdings of U.S. Treasuries by about 25% since the beginning of 2021 and has been selling off since reducing it to below $1 trillion in April 2022.

Japan remained the largest buyer, with a net purchase of $16.4 billion, bringing its holdings to $1.168 trillion. The UK, the third largest holder, also increased from $691.2 billion to $700.8 billion during the same period. The gap in holdings between China and the UK was only $74.2 billion.

Experts predict that if the trend continues, the UK will surpass China in the next few months to become the world’s second-largest holder of U.S. Treasuries.

China continues to sell U.S. Treasuries because the possibility of an early interest rate cut in the U.S. is decreasing, and China’s conflicts with the U.S. are growing.

Following Jerome Powell’s recent remarks as Chairman of the Federal Reserve (Fed), economists predict an interest rate cut as early as September or next year.

Chairman Powell warned on the 16th that if inflation continues to rise, there is a high possibility of delaying an interest rate cut until the end of this year.

Dong Xiaofeng, a senior associate Research Fellow at Chongyang Institute for Financial Studies at Renmin University of China, said, “The status of the U.S. dollar as a global reserve currency will not change, so it seems unlikely that China will give up U.S. Treasuries,” but also predicted, “China will continue to reduce its holdings.”

Instead of selling off U.S. Treasuries, China is increasing its holdings of safe assets such as gold.

Daniel Kim
content@viewusglobal.com

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