CEO Morning Brief

China Sells Record Sum of US Debt Amid Signs of Diversification

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Publish date: Fri, 17 May 2024, 10:49 AM
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TheEdge CEO Morning Brief

(May 16): China sold a record amount of Treasury and US agency bonds in the first quarter (1Q), highlighting the Asian nation’s move to diversify away from American assets as trade tensions persist.

Beijing offloaded a total of US$53.3 billion (RM249.59 billion) of Treasuries and agency bonds combined in 1Q, according to calculations based on the latest data from the US Department of the Treasury. Belgium, often seen as a custodian of China’s holdings, disposed of US$22 billion of Treasuries during the period.

China’s investments in the US are garnering renewed investor attention amid signs that tensions between the world’s largest economies may worsen. President Joe Biden has unveiled sweeping tariff hikes on a range of Chinese imports, while his predecessor Donald Trump said he might impose a levy of more than 60% on Chinese goods if elected.

“As China is selling both despite the fact that we are closer to a Federal Reserve rate-cut cycle, there should be a clear intention of diversifying away from US dollar holdings,” said Stephen Chiu, the chief Asia foreign-exchange and rates strategist of Bloomberg Intelligence. “China’s selling of US securities could speed up as US-China trade war resumes”, especially if Trump returns as president, he said.

With China selling dollar assets, its holdings of gold have risen in the nation’s official reserves. The share of the precious metal in the reserves climbed to 4.9% in April, the highest according to central bank data going back to 2015.

China and countries with close ties to it have increased their holdings of gold in foreign-exchange reserves since 2015, while countries in the US bloc have kept them broadly stable, Gita Gopinath, the first deputy managing director of the International Monetary Fund, said in a speech this month. “This suggests that gold purchases by some central banks may have been driven by concerns about sanctions risk,” she said.

Source: TheEdge - 17 May 2024

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