BEIJING – In a year Beijing, the largest foreign holder of US public debt, sold its US Treasury securities worth $67.2 billion. Why did China decide to take this step and how could this affect the US economy?
China, the largest foreign-owned US public debt holder, made the biggest US Treasury bond sale in two years, reducing its investment in that asset to $1.12 trillion.
In the 12-month period ending March, China reduced its investment in US Treasury securities by $ 67.2 billion, which corresponds to 5.6% of Chinese investment in that asset, investment bank UBS said, quoted by CNBC .
According to analysts, China does not threaten to either stop buying Treasuries or engage in immediate sales, which has shaken the bond market previously. Most likely, Beijing took that step to defend its national currency.
While the massive sale of US government bonds could aggravate trade negotiations with Washington, the world’s two largest economies, the long-term impact of such measures remains unclear.
It is worth mentioning that the issue of Treasury bonds allows Washington to finance rising public spending, stimulate economic growth and keep interest rates low.
If the Chinese decide to get rid of the US public debt or significantly reduce their share of that market, an imbalance will arise. Washington depends too much on foreign buyers of these bonds. The massive sale of Treasury bonds would cause a drastic increase in interest rates which, in turn, would be a blow to the larger global economy.
“The massive sale of Treasury bonds is the biggest weapon they [the Chinese] have, they have to do more to fight the US So if that’s the case, that’s what they’re going to use,” said economist Sung Won Sohn.
China remains the largest holder of US public debt, even after its share has fallen to 17.3% compared to other governments around the world, the lowest since June 2006. Japan and the United Kingdom Kingdom are second and third in this list.