U.S. Treasuries are an important part of the global financial market and a major investment target for many countries. Recently, however, there has been a marked divergence in the holdings of the three major overseas buyers of US Treasuries – China, Japan and the United Kingdom. Among them, China's ** US bonds for 7 consecutive months, while increasing ** reserves, has attracted global attention. Against the backdrop of global economic instability, what will be the impact of China's move?
According to the U.S. Treasury Department, China's holdings of U.S. debt stood at $769.6 billion as of October 2023, down $8.5 billion from September and the lowest level since May 2009. This is also the seventh consecutive month of China's U.S. bonds. Since April 2022, China's holdings of U.S. debt have been below the $1 trillion level, and by October 2023, it was $97.5 billion, or 11.5 billion, from the end of 20222%。
Some analysts see this as a long-term trend that has developed in China over the past decade, with China's holdings of U.S. Treasuries falling by about 34% since late 2013. Especially after 2022, the *** of US bonds has led to a shrinkage in the value of US bonds held by China, which has prompted China to further accelerate the pace of **, which is more of a passive response.
At the same time, the United Kingdom and Japan have opted to increase their holdings of US bonds. Not long ago, the United States reached an impasse over the debt ceiling, and in order to solve this problem, the US Treasury issued a large number of US bonds, raising interest rates, attracting many overseas buyers, including the United Kingdom and Japan. It also reflects the fact that the United States has had to make some concessions in order to maintain its own debt levels. However, for China, such interest rates are not enough to entice it to continue holding US bonds.
At the same time as the US debt, China is also increasing its own reserves. According to public data, as of the end of November 2023, China's ** reserves were 71.58 million ounces (about 2226.).4 tons), an increase of 380,000 ounces (about 10.) from October77 tons). This is the 13th consecutive month of increase in China's ** reserves.
This move reflects China's pursuit of diversification of foreign exchange reserves and can also reduce its dependence on the US dollar, thereby countering the risks that may arise from US dollar hegemony. In addition, increasing the reserves** can also improve the credibility of the renminbi and the attractiveness of the currency of international transactions. In a sense, this is also a means for China to promote the internationalization of the renminbi.
It can be seen that China has two major directions in its economic strategy: on the one hand, it has avoided the asset losses caused by U.S. bonds through U.S. bonds; On the other hand, by increasing the holdings**, the diversification of foreign exchange reserves has been enhanced, and the security and stability of the country's economy have been guaranteed. This also indicates that China may further reduce its dependence on the US bond market in the future, and devote more energy to the holding and management of other asset types such as **.
For a long time, the United States has used its dollar hegemony to constantly extract wealth from other countries, especially those that want to be able to develop steadily.
However, the US itself is not in a good financial position. Recently, the U.S. Treasury Department released its monthly report for November 2023. According to the report, the U.S. budget deficit reached a record high of $314 billion in November last year. Compared to the same period the year before, the deficit was still 26% higher, despite a 9% increase in revenues. This also reflects the federal ** deficit for the first two months of fiscal year 2024, which is 3,805$800 million.
In addition, it was noted that the total net borrowing of the United States from October to December 2023 is expected to be $776 billion, and the amount of borrowing from January to March next year is expected to be $816 billion.
Behind these figures, the huge debt and interest expenses of the United States are exposed to the threat to the value and status of American bonds in a high-interest rate environment. This has also caused concern among many investment banks on Wall Street, who have even warned that the United States could fall into a debt crisis again. In recent months, the downgrade of the US credit rating has further increased the risk of a debt crisis. Needless to say, as the world's largest economy, the fiscal deficit and debt crisis of the United States will undoubtedly have a profound impact on the global economic landscape.
In this context, the United States has again set its sights on China. Recently, U.S. Treasury Secretary Janet Yellen said she hopes to visit China again to communicate on some key economic issues, while also calling on China to change its economic policy.
In response, Chinese spokesman Wang Wenbin said that China believes that the development of healthy and stable China-US economic and trade relations is beneficial to both China and the United States and the world, and China is willing to work with the United States to follow the principles of mutual respect, peaceful coexistence and win-win cooperation to promote the healthy and stable development of bilateral economic and trade relations. It also shows that China's economic policy is not something that the United States can command at will.