Yes, Beijing will stick to US government bonds, no matter what happens on the trade front
China is unlikely to sell off its huge US debt holdings because they are the most liquid and secure place for its foreign exchange reserves
The exact total isn’t known but at last count China held at least US$1.19 trillion of US Treasuries.
The investment is one of the most liquid and secure places for Beijing to park its massive pile of foreign exchange, so much so that China is now the US’ biggest foreign creditor with about 8 per cent of the outstanding debt. The real figure could be much higher when Beijing’s proxy investors are factored in.
As China and the United States edge towards a trade war, some commentators have suggested that Beijing’s stockpile is so big that it gives it a “nuclear option” – the power to retaliate by using a sell-off of the debt to send shock waves through the US financial system.
But analysts said China was still unlikely to dump its vast holdings of US bonds and its appetite for the debt would increase in years to come as two big shifts take place: as China’s foreign reserves shrink and its foreign debt repayment obligations grow.
SAFE HANDS
China has been using its foreign exchange reserves to buy US Treasuries for decades, attracted by the liquidity and security offered by the world’s biggest economy.
Those purchases are the responsibility of the State Administration of Foreign Exchange (SAFE), an arm of China’s central bank that manages the country’s US$3.1 trillion of foreign reserves.