China may gradually dump US Treasuries as tensions flare up
China may gradually cut its holdings of US Treasury bonds and notes, in light of rising tensions between Beijing and Washington, state-backed newspaper Global Times cited experts as saying.
With Sino-us relations deteriorating over various issues including coronavirus, trade and technology, global financial markets are increasingly worried if China would sell the US government debt it holds as a weapon to counter rising US pressure.
“China will gradually decrease its holdings of US debt to about $800 billion under normal circumstances,” Xi Junyang, a professor at the Shanghai University of Finance and Economics, was quoted as saying on Thursday, without giving a detailed timeframe.
“But of course, China might sell all of its US bonds in an extreme case, like a military conflict.” China, the second largest non-us holder of Treasuries, held $1.074 trillion in June, down from $1.083 trillion the previous month, according to the latest official data. China has steadily decreased its holdings of the US bonds this year, although some market watchers suspect China may not have necessarily sold US Treasuries as it may have used other custodians to purchase Treasuries.
Dropping to $800 billion from the current level could mean shrinking its holdings by more than 25 per cent. Analysts say large-scale Chinese selling, often referred to as the “nuclear option”, could trigger turmoil on global financial markets.