Since the beginning of this year, China has continued to sell U.S. bonds, with a cumulative sell-off of $97.5 billion. This move has caused some discontent and concern in the United States. Although China is still the second largest overseas creditor of the United States, the continued sell-off and the weakening willingness of other countries to buy U.S. bonds have made the global trend of "de-dollarization" more pronounced. This has led to a growing likelihood of a default on U.S. debt. As the size of U.S. bonds continues to expand and market liquidity increases, the size of U.S. bonds may reach a new record by 2025. U.S. debt to GDP has climbed to 133%, and interest payments on U.S. Treasury bonds are expected to approach a trillion dollars next year.
Although China's sell-off has been strong, the United States has not yet frozen or confiscated China's holdings of U.S. bonds. This behavior is considered a naïve idea that lacks financial common sense. As a financial product, U.S. bonds are not the same as an IOU. The U.S. bonds issued are investment products in the trading market, similar to **, and it is impossible to abolish the U.S. bonds held by a country alone.
In the face of China's continued sell-off of U.S. bonds, the most likely response for the U.S. is to continue issuing more U.S. bonds to fill the gap. The aim of this approach is to ensure the stability of the Treasury market, although this could lead to a surplus of US debt** and further weaken the attractiveness of US bonds.
In addition, the Fed paused interest rate hikes and is expected to cut them next year, which will increase market liquidity and have a positive impact on the U.S. Treasury market. Still, this does not fully offset the impact of reduced US bond purchases in economies such as China. As a result, the U.S. may need to further adjust its debt and economic policies to attract more international investors to buy U.S. bonds.
As the second largest overseas creditor of the United States, China also needs to have a smart strategy in dealing with the issue of the United States canceling our American debt. On the one hand, China can continue to ** US bonds and find other investment channels to diversify the risk of foreign exchange reserves. In fact, China has begun to increase its holdings** to optimize the structure of its foreign exchange reserves and reduce its dependence on U.S. debt. At present, China's ** reserves have reached 2,226 tons.
On the other hand, China can strengthen cooperation with other countries and promote the development of multilateral** and investment mechanisms. This reduces over-reliance on the U.S. economy and improves the ability to respond to external economic risks.
In short, in the face of the possibility of the United States canceling its U.S. debt holdings, China needs to maintain stable decision-making and action and actively respond to risks. By adjusting the structure of foreign exchange reserves in a timely manner and strengthening international cooperation, China can better cope with possible situations and ensure the stable development of the country's economy.
China's move to resell 97.6 billion U.S. bonds has attracted attention and concern in the United States. Although some U.S. lawmakers have proposed to repeal China's holdings of U.S. debt, this idea lacks financial common sense and is unlikely to be implemented. As a financial product, U.S. bonds have investment value in the trading market, and the abolition of U.S. bonds held by a certain country will cause the collapse of the entire U.S. bond market. Instead, the most likely response for the U.S. is to issue more U.S. bonds to fill the previous gap to ensure the stability of the U.S. bond market. For China, a smart strategy is needed to deal with the U.S. cancellation of its U.S. debt holdings. On the one hand, it is possible to continue to ** US bonds and find other investment channels to diversify the risk of foreign exchange reserves. On the other hand, cooperation with other countries can be strengthened, multilateral** and investment mechanisms can be promoted, and overdependence on the U.S. economy can be reduced. Through these measures, China can better cope with possible situations and firmly promote the stable development of the country's economy.