Decline in US Treasury holdings ‘can be warning’

China’s holdings of US Treasury securities have declined in recent months, which can be a warning to Washington that a huge holder of this debt can set trends in the market, a Chinese expert said on Wednesday.

China’s US Treasury holdings declined to $1.171 trillion in July, the lowest since January, from $1.179 trillion the previous month, data from the US Treasury Department showed on Tuesday. Treasury International Capital data showed that China reduced its holdings of US debt in July for the third time in four months.

“In terms of risk management, China can diversify its asset allocation by unloading dollar-denominated assets and increasing euro-denominated asset holdings. It’s safer,” said Dong Dengxin, an expert with Wuhan University of Science and Technology.

Data showed that China remains the largest non-US holder of Treasuries by far, with 17 times as much as Germany and 12 times the holdings of Canada.

“Considering the enormous amount of China’s US Treasury holdings, any ‘small unloading’ from China could equal the total amount of the holdings of a small country,” Dong told the Global Times.

The US-China trade war escalated as the US on Tuesday announced it would impose 10 percent tariffs on $200 billion worth of Chinese goods later this month, rising to 25 percent at the end of the year. China announced tariffs on about $60 billion worth of US goods on Tuesday.

“A small unloading of US Treasury securities can be a warning to the US,” Dong said. “If China is forced to adopt the countermeasure of unloading US debt in the future, international capital may follow, and it can have a negative impact on the US exchange rate and treasuries market.”