China may ditch US Treasuries as decoupling risk looms: Global Times

China may ditch US Treasuries as decoupling risk looms: Global Times

  • Beijing may gradually decrease its holdings of US Treasury bonds if tensions with Washington continue to escalate, reports the state-backed Global Times
  • The sharp weakening of the US dollar amid historically low interest rates will make China more willing to sell its US debt, experts say

China could gradually cut its holdings of US Treasury securities by about 20 per cent to US$800 billion, the state-backed Global Times reported on Friday, as Beijing continues to weigh options to insulate itself from tensions with Washington.

China does not release data on the value of its US federal government bonds, but the latest figures from the US Department of the Treasury showed it held US$1.074 trillion worth at the end of June, making it America’s second largest foreign creditor after Japan.China has long debated whether it should divest itself of US Treasuries as a way of disturbing the US economy, but the growing risk of financial sanctions from Washington – including possible seizure of Chinese assets in the US – has reinvigorated discussion.

China’s Development Research Centre, a think-tank under the State Council, said this week it was possible Washington might seize China’s holdings of US government securities if the bilateral relationship devolves into a full-on confrontation.

But of course, China might sell all of its US bonds in an extreme case, like a military conflictXi Junyang

Xi Junyang, a professor at the Shanghai University of Finance and Economics, was quoted as saying by the Global Times that China will “gradually decrease its holdings of US debt to about US$800 billion under normal circumstances”.

“But of course, China might sell all of its US bonds in an extreme case, like a military conflict,” he said.

Many analysts have said this so-called nuclear option is highly unlikely because it could hurt China as much as the US. But Beijing has been steadily decreasing its holdings of US government debt.

In June, China sold US$9.3 billion in US treasury bonds, according to US Treasury data. In a 12-month period, China’s holdings have dropped 3.5 per cent.

The share of dollar assets in China’s foreign exchange reserves dropped to 58 per cent at the end of 2015 from 79 per cent in 1995, according to the latest official data.