China Could Sell US Sovereign Debt due to Tensions

China could gradually reduce its holdings of US Treasury bonds and notes amid escalating tensions between Beijing and Washington, according to a Chinese news outlet.

With Chinese-US relations deteriorating over issues such as the novel coronavirus, which causes COVID-19, trade and technology, global financial markets are increasingly concerned that China will sell US government debt to face mounting pressure from Washington, and that could trigger disruption in global financial markets, the Global Times newspaper noted on Friday.

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“China would gradually decrease its holdings of US debt to about 800 billion dollars under normal circumstances, Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Chinese media.

Of course, the proffesor adds, China could sell all of its US bonds in an extreme case, such as a military conflict, which could occur in the near future in the South China Sea region if the US Navy does not puts an end to its provocation maneuvers.

China, the second largest holder of Treasury bonds after the United States, had 1.074 billion dollars in June, less than 1.083 billion from the previous month, according to the latest official data collected by the local newspaper. The Chinese authorities have been steadily decreasing their holdings of US bonds this year, the report added.

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Some market watchers suspect that Beijing has not necessarily sold US papers, as it may have used other custodians to buy US debt papers.

Analysts say that a large-scale Chinese sale, often referred to as a “nuclear option,” could trigger disruption in global financial markets.

The potential risk of default for the United States, according to the informative piece, for having sharply increased its debt until reaching approximately the same size of its Gross Domestic Product (GDP), a level not seen since the end of World War II and well above the internationally recognized safety line of 60%, could be another reason for Beijing to gradually reduce its position in bonds and Treasury notes from the world’s largest economy.

Finally, the report says that China is heavily exposed to the US dollar and dollar assets. In fact, its official foreign exchange reserves stood at $ 3.15 trillion at the end of July.


Featured image: US President Donald Trump and his Chinese counterpart Xi Jinping at the G20 summit in Osaka, Japan, June 29, 2019 (Photo: AFP)


Translation: OT/JRE


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