China sold a record amount of U.S. Treasuries in the first quarter of 2024, according to U.S. Treasury data, continuing what many economists believe is a strategic shift away from dollar assets.
In the first three months of 2024, China sold $53.3 billion worth of U.S. and agency bonds.
China’s actions come as it rapidly ramps up its purchases of gold and other commodities as part of a broader strategy to diversify its assets amid rising geopolitical tensions with the United States.Ukraine in 2022 Looking at the economic impact of sanctions on Russia after the invasion, some analysts say China is aimed at mitigating similar risks.
Craig Shapiro, macro advisor at LaDuc Trading, points to three main reasons for this trend. “The handling of Russian reserves by the United States and other G7 countries, including threats of expropriation and sanctions, may have prompted China to reduce its exposure to U.S. debt to avoid similar targeting,” he said. “It’s expensive.” newsweek.
He also mentioned the impact of the growing US budget deficit.
He added: “China probably expects U.S. interest rates to continue to rise due to persistent budget deficits, so it would be wise to sell now rather than take a loss or risk repaying with a devalued dollar.” ” he added. Selling these holdings could allow China to manage its domestic economy without risking a devaluation of the yuan.
Federal Reserve Chairman Jerome Powell said this week that the monetary authorities may keep the federal funds rate unchanged at 5.25% to 5.50%, where it has been since July of last year, for longer than previously expected because inflation is unstoppable. said that it was high.
Brad Setzer, an economist at the New York City-based think tank Council on Foreign Relations, offered a different perspective in an article late last year.
He claimed that the dollar share of China’s foreign exchange reserves has remained stable since 2015. He cited evidence suggesting that the dollar share of China’s foreign exchange reserves has remained broadly stable since 2015.
“If simple adjustments were made to U.S. Treasuries held by offshore custodians like Belgian[financial services provider]Euroclear, China’s reported U.S. asset holdings would be between $1.8 trillion and $1.9 trillion. appears to be essentially stable between the two,” Setzer wrote.
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China’s accumulation of raw materials extends to crude oil, of which China remains the largest importer. The country will buy a record 11.3 million barrels of oil per day in 2023, a 10% increase from 2022, as fuel demand soared after pandemic restrictions were lifted.
Some economists speculate that China’s hoarding of primary goods may signal a strategic depreciation of its currency, the renminbi. A devaluation could make China’s exports cheaper and more competitive globally, and could signal China’s leadership amid manufacturing surpluses and low consumer confidence.
However, such a move carries significant risks, including higher import costs, higher inflation, potential instability in global currency markets, and the risk of a trade war as countries face an influx of cheaper Chinese goods. accompanies. Economists therefore refer to this as the “nuclear option.”
newsweek We have asked the Chinese Ministry of Foreign Affairs for comment in writing.
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