Crisis mitigation? What is the reason for China's purchase of US Treasury bonds again?
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Introduction: China has been selling U.S. bonds since 2019, but the latest figures show that China added $12.4 billion in U.S. bonds in November, ending a seven-month streak. The move raises questions about why China has shifted from short selling to holding U.S. bonds. This article examines the rationale for China's increase in U.S. debt and the effects of such a move.
Why China is increasing its U.S. debt.
China has resolutely adopted a "de-escalation" strategy over the last seven months, not only selling off a lot of US bonds, but also reducing its holdings. But why did China increase its U.S. ** bonds so much in November? Here are some possible reasons:
1.Investment in foreign assets: The US Federal Reserve's recent interest rate cuts** have boosted the yield of US bonds** while also driving their value. In terms of China's holdings of U.S. bonds, now is the perfect time to get higher yields on U.S. bonds. Given the need for outbound investment in China, increasing investment in U.S. bonds is a good way to do so.
2.U.S.-China Relations Ease: A major meeting between U.S. and Chinese leaders last November laid a good foundation for easing tensions between the two sides. Although there will be some minor contradictions in the future, on the whole, this is a good thing and a win-win situation for China and the United States. One of the reasons China sold U.S. bonds was because they didn't trust the U.S. and feared being punished like the U.S. and freezing Russia's foreign exchange reserves. Tensions between China and the United States have also improved, allowing China to make decisions to increase investment at a time when U.S. debt is dwindling.
3.Allocation of U.S. debt: China is the second largest creditor of the United States, and it has increased its investment in the U.S., which helps protect its foreign exchange reserves and allow it to better allocate its capital. Chinese banks can appropriately adjust their holdings of U.S. Treasury bonds according to macroeconomic conditions in order to achieve higher returns and lower risks.
The relationship between the increase in US debt and the depreciation.
One might wonder whether China's increase in the amount of U.S. bonds will cause the banks to stop cutting their bonds. This is not the case. China's "de-beautification road" is a pluralistic process, and in this process, holding a large number of ** is a very critical link.
1.Promote the use of ** and investment to promote the use of the RMB: China uses the "Belt and Road" and other means to expand its ** and investment with countries around the world, so as to promote its global circulation. As China grows closer to these countries, its use in transactions and other settlements is increasing.
2.China has the world's sixth-largest reserves, but in terms of the size of its overall economy, it is far from enough. Improving the security and stability of China's foreign exchange reserves has promoted its international status.
It is worth noting that the purpose of holding more U.S. bonds is not the same as holding more. First, the asset allocation of enterprises to obtain high returns; The second goal is to increase the proportion of foreign exchange reserves and improve the stability and international status of its exchange rate.
The conclusion is that China has stopped selling US bonds for more than seven months and has instead increased US bonds, but this does not mean that the depreciation of the yuan has stopped. The move follows both economic principles and China's national interests. Increasing the yield on U.S. bond investment is of great significance to maintaining the stability of China's overseas capital and foreign exchange reserves. At the same time, China continues to pursue a "de-institutionalization" strategy, such as increasing **, to increase its influence in the world and allow it to have more foreign exchange reserves. This integrated investment strategy has helped China ensure the safety and profitability of the country in a variety of environments.
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