‘China’s caution’ reflected in shedding of some US Treasury holdings as stimulus measures raise inflation risk
- US Treasury data shows China’s holdings of US debt dropped by US$3.8 billion in March, month on month, to US$1.1 trillion – the first decline in months
- Yield of benchmark 10-year US Treasury securities jumped to 1.7 per cent in March, up from 1.426 per cent on March 1 and 0.917 per cent in early January
Beijing may be taking a more cautious view of US Treasury securities, as Washington’s reliance on bigger fiscal stimulus and monetary loosening spark worries over the value of the US dollar and global inflation.
At the end of March, China’s holdings of the US government debt instruments dropped by US$3.8 billion from a month earlier, to US$1.1 trillion. This marked a retreat from the previous four monthly rises in a row, according to data released by the US Treasury Department on Monday.
Chinese holdings of US Treasuries, which now account for nearly one-third of its US$3.198 trillion in foreign exchange reserves, are often used to gauge the state of its relations with the United States.
Zhou Xuezhi, a researcher with the Institute of World Economics and Politics under the Chinese Academy of Social Sciences, said the single-month fall, considering the valuation effects, does not necessarily signal a reversal of Beijing’s investment strategy.
“But it mainly reflects China’s caution,” he said. “It didn’t have much confidence in the rebound of the US dollar index, and in the meantime took a wait-and-see approach on how US fiscal stimulus unfolded.”