Renewed fears of a possible U.S. Debt selloff by China shook the market after Beijing-based Global Times tabloid newspaper under the auspices of the Chinese Communist Party published an article last Thursday quoting Xi Junyang, a professor at the Shanghai University of Finance and Economics, that was saying that “China will gradually decrease its holdings of U.S. debt to about $800 billion under normal circumstances”.
Xi Junyang has not provided any timeframe of such possible selloff. But, he added that “China might sell all of its U.S. bonds in an extreme case, like a military conflict.”
China is the second largest holders of U.S. Treasuries outside the United States with $1,074 billion stake in June down from $1.083 trillion the previous month, according to latest official data. It is true that China continuously lowering its U.S. debt holdings amid U.S.-Sino tensions. The White House Administration is mounting pressure on China on various issues, including accusations of conscious concealment of coronavirus real threat, human rights violations of Uighurs, undermining unique freedoms and status of Hong Kong, stealing technologies from the United States and many others. But if to look on the real figures, Chinese stake in U.S. Debt has decreased by only $38.1 billion from June 2019, from the level of $1,112.5 billion. China may not even necessarily sold this entire amount of Treasuries as it may have used other custodians to purchase Treasuries.
Nevertheless, with such pace of selling U.S. debt by China it would require more than 5 years to lower its stake by $200 billion, mentioned in GT article. Increasing selloffs by China is hardly possible as it would be like to shoot oneself in the foot as selling such huge amount of debt would certainly dump Treasuries’ prices. In this case, foreign reserves of China would also decrease significantly, as the gains from these sales would also deteriorate. Massive selloff of the U.S. debt will lead to a weaker U.S. Dollar, which is hardly acceptable to China as its exports would be much cheaper and less competitive on the global market. Exports are crucial for a rapid economic recovery of China considering U.S.-China trade tensions and rising tariffs.
Besides, if such an amount of Treasuries was sold once off, it is reasonable to wonder where this huge amount of money would be reinvested. China could not increase imports in such volumes. There is no financial market other than safe haven U.S. debt to absorb it. Moreover, U.S. Treasuries’ yields are still attractive even if they fell to 0.7% recently. No alternative assets with such liquidity and reliability together with low, but still attractive yields exist globally for the moment. The U.K Bonds provide the annual yields of 0.2%, Japanese bonds – 0.04% and Germany bonds – minus 0.5%.
So, a massive selloff of the U.S. debt by China looks more like a phantom menace that would materialise only in extreme cases that are not in a horizon nowadays.
Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.
We are ready to assist you in every step of your trading experience
by providing 24/5 multilingual customer support.
Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.19% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.
© 2011-2023 Teletrade-DJ International Consulting Ltd
This website is operated by Teletrade-DJ International Consulting Ltd, which is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11. Teletrade-DJ International Consulting Ltd is located at 88, Arch. Makarios Avenue, 2nd floor, Nicosia Cyprus.
The company operates in accordance with the Markets in Financial Instruments Directive (MiFID).
The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. Teletrade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.
TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.
Teletrade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.
Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.19% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.