Economist adds voice to calls for China to cut US Treasury holdings to hit back at Trump’s tariffs

Yu Yongding, one of China’s most prominent economists and a former member of the central bank’s monetary policy committee, adds his voice to the chorus calling for a reduction in the country’s hoard of US Treasuries

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Specialist Meric Greenbaum works at his post on the floor of the New York Stock Exchange, Friday, December 11, 2015. Photo: AP

Published: 7:00pm, 25 Jan 2018Updated: 12:05pm, 23 Mar 2018

China, the largest creditor of the United States government, has a tool in its policy arsenal to retaliate against any punitive trade measures imposed by Donald Trump’s administration, although the option should be exercised with caution, said a prominent Chinese economist who used to sit on the central bank’s monetary policy advisory committee.

The comment by Yu Yongding, director of the Institute of World Economics and Politics, and member of the People’s Bank of China committee that sets monetary policy, joins a rising chorus of voices within China’s circle of policymakers to pare back on the country’s US$1.71 trillion in US Treasuries, the largest hoard in the world.

“Some people said reducing China’s holdings of US Treasuries [can be an effective retaliation against] the trade war started by Trump,” Yu said during a financial forum in Beijing. “ While I think it would be a double-edged sword which should be carefully used, I agree that China’s hoard of US Treasuries is too high and should be reduced gradually.”

Professor Yu Yongding, Director of Institute of World Economics & Politics, Chinese Academy of Social Science, and a former member of Monetary Policy Committee of People Bank of China, is pictured in his Beijing office as of July 27, 2006. Photo: SCMP

China’s economy has transformed since the country’s 2001 membership in the World Trade Organisation into the world’s factory. The economy exports more than it imports, running up large trade surpluses against major trading partners that come back to the country in US dollars as foreign exchange reserves. China had the world’s biggest foreign reserves of about US$3.1 trillion as of December, which rose slightly in 2017 because of a 6.7 per cent appreciation of the Chinese currency.

All the foreign exchange earned from exports need to be invested, and US Treasuries offer the most liquid and secure investments for dollar-denominated assets on earth.