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In the recent U.S. bond auction, the issuance size hit a new high in 2021, but the winning interest rate was higher than expected, and the bid multiple also hit the lowest point in a year and a half. This indicates that global investors are not interested in this issue of U.S. bonds. There are two main reasons for this. First, the recent strong US PMI data has weakened investors' expectations of a rate cut in the US dollar. Second, uncertainty about the medium-term economic outlook for the United States has left investors on the sidelines.
At the same time, China increased its holdings of U.S. debt by $12.4 billion in November, bringing its total to $782 billion. This makes China the third largest foreign creditor of U.S. debt. However, this increase in holdings is mainly passive, which is related to the strengthening of the expectation of a US dollar interest rate cut and US bonds***. Judging from China's behavior of increasing its holdings for 14 consecutive months, China is implementing a policy of de-dollarization for a long time, so the future ** is also possible.
China no longer relies on the U.S. dollar to cut interest rates or raise interest rates to boost its economy. On the contrary, until 2024, China will continue to promote the development of high-end industries, promote internal circulation through a variety of policies, and achieve stable economic growth. In contrast, the Fed is under increasing pressure on the risk of extending higher interest rates due to the slump in US Treasuries.
The results of the recent U.S. Treasury auction were shocking, and investors were clearly not interested in this tranche of U.S. bonds. In contrast, China is increasing its holdings of U.S. debt, making it the third largest foreign lender of U.S. debt. However, this increase in holdings is mainly passive and is related to the strengthening of expectations of a rate cut in the US dollar. China is gradually implementing a policy of de-dollarization and does not rely on the dollar's interest rate cuts or interest rate hikes to boost its economy. On the contrary, China will achieve stable economic growth by promoting the development of high-end industries and promoting internal circulation. In contrast, poor U.S. Treasury issuance data has put pressure on the Fed on the risk of extending higher interest rates.
In the context of the ever-evolving global economic landscape, China, as the world's second largest economy, is gradually transforming its economic development model. In the past, China once invested a large amount of its reserve funds in US dollar assets such as US bonds to maintain exchange rate stability and maintain and increase its value. However, with the increasing power of China and the diversification of its market, China has ceased to rely entirely on US dollar assets, and has begun to gradually reduce its dependence on US debt and promote the process of de-dollarization. This change brings certain risks, but it also brings more autonomy and development opportunities to China. China's initiatives demonstrate to the world that a diversified economic landscape is taking shape, and that all countries are actively responding to international economic changes and seeking a more independent and sustainable development path.
At the same time, China is driving economic development by increasing investment in high-end industries and driving innovation, reducing its sensitivity to external fluctuations. The implementation of this strategy needs to strengthen scientific and technological innovation, talent training and market competitiveness with the support of policies and market mechanisms, and pay attention to the coordinated development between regions and industries. Only in this way can China maintain stability in the global economic landscape and lay a solid foundation for future development.
In general, China's actions in the international financial market, as the world's second-largest economy, have attracted much attention. China's increase in U.S. debt holdings shows that its influence in the global investment market is expanding, while also highlighting China's efforts to restructure its economy and promote de-dollarization. However, we also need to be soberly aware that changes in the international economic situation have brought certain challenges and risks to China. Therefore, China needs to strengthen its competitiveness, promote structural reform and innovation, actively adapt to and guide the trend of international economic development, and create favorable conditions for achieving sustainable economic development. Only in this way can China maintain a relatively stable position in the new international economic pattern and make greater contributions to the prosperity of the global economy.
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