The People's Republic of China's (PRC) stash of US Treasuries has dropped to $821.8 billion, which is the lowest since May 2009, as US Treasury Department data indicated on Monday.
Fourteen years ago, the PRC reduced its Treasury bond holdings to just $776.4 billion in the wake of the global financial crisis of 2008. Now, the US' economic situation has also prompted concerns in Beijing, according to the Chinese media.
The PRC has been steadily getting rid of US Treasuries since April 2022, with Chinese financial experts at the Renmin University of China saying the reduction is a long-term strategy caused by prognoses that the US will slide into recession in 2024, as well as the erosion of the dollar's dominance worldwide.
Chinese economic observers argue that even though US data hints at short-term resilience of the American economy, it by no means guarantees that the nation will see a "soft landing" after the Federal Reserve's aggressive rate hikes.
One should keep in mind that Treasury bonds are especially sensitive to interest range changes: as a rule of thumb, when the Fed increases rates, the market price of bonds immediately goes down. Predictably, this cools the appetite of investors to keep them or buy more.
In addition, China is concerned by the fact that the US gross national debt exceeded $33 trillion for the first time on Monday.
Speaking to Sputnik's New Rules podcast in July, renowned US investor Jim Rogers noted that the US' enormous national debt makes the current inflation problem even worse, preventing the country from getting out of the vicious circle quickly.
"The inflation now is worse," the investor told Sputnik at the time. "Now the United States is the largest debtor nation in the history of the world. So, sure, things are okay at the moment, but 'at the moment' is not going to last forever. Somebody has got to pay this debt. Somebody has to print more money. Somebody has to borrow more money. And when you borrow huge amounts of money, interest rates will go higher and higher, inflation will go higher because so much money has been printed."
To complicate matters further, "Bidenomics" is based on excessive spending, Rogers noted. Where could it lead America? The excessive money printing will further devalue the US dollar, he warned.
The uncertainty of the greenback's future adds to China's concerns, according to Chinese financial observers. Washington's non-comprehensive monetary policies may backfire on the PRC, they say, naming it as yet another reason for China to reduce its Treasury holdings.
Last but not least, the US' political polarization and instability may further exacerbate the economic situation, per the Chinese media. Earlier this year, the Biden administration and House GOP locked horns over the nation's debt ceiling, prompting a lot of controversy as the US Treasury Department warned about the apocalyptic consequences of a potential default. This predictably gave the global market the shivers.
19 September 2023, 20:07 GMT
Now, again, the US government's showdown over the government funding deadline (September 30) is triggering new concerns and uncertainty. The potential government shutdown and the previous debt ceiling crisis illustrate the "increasingly hostile political environment" in the US, Chinese analysts say.
Given all of the above, China – the second largest holder of US Treasuries – finds it safer to drift away from US Treasury bonds and greenbacks, too.
During the 15th BRICS Summit in August, China, along with Russia, India, Brazil, and South Africa, expressed willingness to accelerate the shift to national currencies and domestic mechanisms for financial transactions. Besides the troubling, and sometimes irresponsible, monetary policies carried out by the Federal Reserve, the participants of the summit also cited Washington's weaponization of the dollar and freezes on foreign central bank assets. Under these circumstances, holdings in US financial instruments appear to be a risky endeavor.