China will not dump US Trea­suries un­til forced: an­a­lysts

Global Times US Edition - - BIZUPDATE -

China fur­ther re­duced its US Trea­sury hold­ings in April to their low­est level in two years. An­a­lysts said that China is not likely to weaponize its US Trea­suries in the es­ca­lat­ing China-us trade war un­less it be­comes ab­so­lutely nec­es­sary.

China’s hold­ings fell $7.5bil­lion to $1.1 tril­lion, the low­est level since April 2017, ac­cord­ing to sta­tis­tics from the US Depart­ment of Trea­sury pub­lished on Mon­day.

The reduction has trig­gered spec­u­la­tions that China may dump its large port­fo­lio of US Trea­suries in re­tal­i­a­tion to the es­ca­lat­ing trade war. The coun­try has also listed rare earths to fight against the US.

Al­though the US dol­lar and its do­mes­tic fi­nan­cial mar­kets will be heav­ily im­pacted if China takes the move to dump US Trea­sury hold­ings, an­a­lysts noted that, at this mo­ment, China will not take such an ag­gres­sive move be­cause it would stir up global fi­nan­cial tur­moil.

“China will not weaponize its US Trea­suries un­til forced by absolute ne­ces­sity,” said Dong Dengxin, di­rec­tor of the Fi­nance and Se­cu­ri­ties In­sti­tute at the Wuhan Univer­sity of Science and Tech­nol­ogy.

How­ever, China may fur­ther re­duce its US debt hold­ings to limit its risk and im­prove its re­serve port­fo­lio by in­creas­ing its re­serves of other cur­ren­cies and gold, an­a­lysts said.

China’s April for­eign ex­change re­serves stood at $3.095 tril­lion, cen­tral bank data showed in May. The $1.1tril­lion US Trea­sury hold­ings still ac­counted for a high pro­por­tion of that fig­ure.

As many of China’s hold­ings of 10year US Trea­suries that were bought af­ter the US fi­nan­cial cri­sis are up to their clo­sure time, it’s time to re­con­sider the re­serve port­fo­lio now, Tan Yal­ing, head of the China Forex In­vest­ment Re­search In­sti­tute, told the Global Times on Mon­day.

“To im­prove the re­serve struc­ture and en­sure that it is in ac­cor­dance with China’s in­ter­ests from a long term strat­egy per­spec­tive,” Tan said.

US na­tional credit is drop­ping, which gives China rea­son to re­duce US Trea­sury hold­ings to re­duce risks, Dong said.

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