Recently, China once again sold $97.5 billion in U.S. bonds, a move that caused dissatisfaction among some U.S. politicians and **. They expressed concern about China's sell-off and offered to either confiscate China's holdings of U.S. bonds or void them. While such calls have not yet been implemented, their presence casts a shadow over the debt relationship between the United States and China.
There are many reasons behind China's sell-off of US bonds. On the one hand, in the current global economic environment, many central banks have ** US bonds in order to seek better investment returns. On the other hand, China is working hard to optimize the structure of foreign exchange reserves, increase its holdings and reduce its dependence on US dollar assets. Behind this strategy is the consideration of stabilizing the RMB exchange rate and diversifying risks. In addition, due to the impact of Sino-US frictions, China may push domestic institutions to deal with potential shocks.
China's sell-off in U.S. bonds has continued into this year, and it has been on a significant scale. According to the latest data, China has been net of US bonds for seven consecutive months this year, with a cumulative sell-off of $97.5 billion, which has caused more attention and concern about China's bond market behavior.
Calls for the United States to cancel China's holdings of U.S. debt are growing among some politicians, but in practice, such an approach is difficult to implement and carries significant risks. First of all, U.S. bonds are a financial product, which exists as an investment product in the trading market, which is different from the general debt relationship. The U.S. cannot simply solve its debt problem by canceling China's U.S. bonds, otherwise it will have a huge impact on global financial markets and undermine the international credit system. Second, the unilateral cancellation of China's U.S. bonds by the United States will lead to great distrust of the U.S. bond market among international investors, which will trigger a global financial crisis. Therefore, although there are some voices in the United States calling for the cancellation of China's holdings of US debt, in reality such a move is not realistic and does not conform to the basic principles of international financial rules.
The U.S. is more likely to make up for the debt gap by issuing more U.S. debt than by voiding China's holdings of U.S. debt. Considering that the current size of the US debt has been as high as 33$93 trillion, and counting, the United States has to issue bonds to meet the needs of domestic spending. Although the willingness of global central banks to buy U.S. bonds has declined, the Fed's pause in interest rate hikes and the expected rate cuts will increase market liquidity, which may prompt more international investors to buy U.S. bonds, making them even larger. Therefore, the most likely way is for the United States to continue to issue bonds and continue to expand the size of the US debt to make up for the previous debt gap.
China's holdings of U.S. debt are the second largest in the world, so it is crucial for China to respond to the possibility of U.S. debt being voided. As an international financial power, China should develop strategies to reduce potential risks.
First, China should continue to optimize the structure of its foreign exchange reserves, increase the proportion of non-US dollar assets, and reduce its dependence on US dollar assets. Previously, China has optimized the structure of foreign exchange reserves by increasing its holdings, and the current China's reserves have reached 2,226 tons. This move will help reduce the risk of China's holdings of U.S. debt.
Second, China should continue to promote the internationalization of the renminbi and expand the use of the renminbi in international investment and investment. By improving the international status of the renminbi, China can reduce its dependence on dollar assets and reduce the risk of US debt being voided.
In addition, China can also strengthen financial cooperation with other countries and increase investment in the bond markets of other countries. By diversifying its portfolio and diversifying its risk, China can reduce the impact of US debt insolete.
Finally, China should keep a close eye on the U.S. bond market, and keep a close eye on the U.S. debt situation and policy developments. Grasp market changes and risks in a timely manner, and formulate corresponding risk response strategies to protect their own interests.
China's renewed sell-off of U.S. bonds has sparked dissatisfaction in the United States, and some people have even put forward the idea of abolishing China's U.S. bonds. However, it is unlikely that the United States will void China's holdings of U.S. bonds, as it would cause chaos and instability in global financial markets. In fact, the U.S. is more likely to make up for the debt gap by issuing more bonds. In response to this situation, China can deal with the potential risk of US debt invalidation by optimizing the structure of foreign exchange reserves, promoting the internationalization of the renminbi, and strengthening financial cooperation. Against the backdrop of the continuous adjustment of the global economic landscape, China needs to manage its asset allocation more carefully to protect its national interests.