China cuts holdings of US Treasury debt in January, ending 2-month rise
A teller counts U.S. dollar bills at a bank in Qionghai, south China's Hainan Province.Photo:Xinhua
China's holdings of US Treasury debt fell to $797.7 billion in January, ending a two-month increase, according to data released by the US Department of the Treasury on Tuesday.
As the second largest-holder of US government debt, China's holdings in January fell by $18.6 billion from December. Since April 2022, China's holdings of US Treasury debt have remained below $1 trillion.
During the full year of 2023, China's US debt holdings decreased by a net $50.8 billion.
"China's increase or decrease in its holdings of US debt is mainly based on the country's balance of external payments. In addition, the profits on US bonds may have some impact," Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Wednesday.
Xi noted that short-term fluctuations in China's holdings of US Treasury debt are normal. Considering the need to reduce its dependence on US debt, gradually cutting its holdings will become a trend for China, he said.
Among the top three foreign government investors, the UK, as the third-largest holder, also chose to reduce its holdings of US government debt in January. The holdings of the UK stood at $753.5 billion, down $200 million from a month earlier, falling from a record high set in December and the first decline in four months.
Japan has been the largest overseas holder of US Treasury debt since June 2019, when it surpassed China. In January, Japan's holdings exceeded $1.15 trillion, hitting a new high since August 2022 for a second month and increasing by $14.9 billion from December last year.
China's State Administration of Foreign Exchange (SAFE) announced last month that as of end-January, China's foreign exchange reserves stood at $3.219 trillion, down $18.7 billion from a month earlier.
The SAFE reiterated that the scale of foreign reserves was affected by the combined effect of exchange rate translation and changes in asset prices, pointing out that the US Dollar Index rose in January, and global financial asset prices were mixed.
The basic trend of China's economic recovery and long-term improvement has not changed, which is conducive to maintaining stability in the scale of foreign reserves, the SAFE said.
Analysts noted that in the medium to long term, the willingness of overseas capital holders to invest in US Treasury bonds will continue to diverge.
On the one hand, some private capital is betting on profits from US debt holdings due to this year's Fed interest rate cuts.
On the other hand, overseas central banks are still steadily promoting the diversification of their foreign reserves.
More are considering the allocation of gold as an alternative to US Treasury debt due to inflation, geopolitical risks and greater diversification in the global reserve currency system.
United States Treasury securities, also called Treasuries or Treasurys, are government debt instruments issued by the United States Department of the Treasury to finance government spending, in addition to taxation.
debt fell to $797.7 billion in January, ending a two-month increase, according to data released by the US Department of the Treasury on Tuesday. As the second largest-holder of US government debt
US government debt
Total US federal government debt breached $30 trillion mark for the first time in history in February 2022. As of December 2023, total federal debt was $33.1 trillion; $26.5 trillion held by the public and $12.1 trillion in intragovernmental debt.
China sold a record $53.3 billion worth of Treasurys and agency bonds in the first-quarter, Bloomberg reported. It previously unloaded US debt to prop up its yuan, which has again grown weak against a rallying dollar. The country is piling into gold, which now makes up the highest share of its reserves since 2015.
Since the U.S. dollar has a variable exchange rate, however, any sale by any nation holding huge U.S. debt or dollar reserves will trigger the adjustment of the trade balance at the international level. The offloaded U.S. reserves by China will either end up with another nation or will return back to the U.S.
Of the total held by foreign countries, Japan and Mainland China held the greatest portions, with China holding 797.7 billion U.S. dollars in U.S. securities. Other foreign holders included oil exporting countries and Caribbean banking centers.
Nearly half of all US foreign-owned debt comes from five countries. All values are adjusted to 2023 dollars. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).
Experts reckon yen purchases by the Bank of Japan at the behest of the Ministry of Finance are funded by dollar deposits held by the BOJ, which are later replenished by the sale of very short-dated U.S. Treasuries or even bills.
China has offloaded USD 22.7 billion US treasury bills recently over concerns over security and a further delay to expected interest rate cuts by the American Federal Reserve, amidst its intensified strategic rivalry with Washington.
How bad is it? China's debt is more than 250 percent of GDP, higher than the United States. It remains lower than Japan, the world's most indebted leading economy, but some experts say the concern is that China's debt has surged at the sort of pace that usually leads to a financial bust and economic slump.
Does Russia still own U.S. Treasury bonds? How much U.S. debt has Russia owned in the past and did the overnight repo market & U.S. bond market nearly collapse in Sep. 2019 due to Russia & China selling their Treasury bonds? According to the US Treasury, Russian ownership of US Treasuries was $2.1 Billion in Nov 2022.
The costs to the U.S. economy if we were to prohibit domestic companies (impacting companies such as GE, Honeywell, Collins, and Parker Aerospace) from engaging with COMAC would be significant: The U.S. Chamber of Commerce estimates that losing access to China's aviation market would translate into a loss of $38 ...
China owns 384,000 acres of American agricultural land. That's a 30% increase just since 2019. And on top of that, they own land near an air force base in North Dakota.
Among other countries, Japan and China have continued to be the top owners of US debt during the last two decades. Since the dollar is a strong currency that is accepted globally, holding a substantial amount of US debt can be beneficial.
In March 2023, the share of the RMB in China's settlements surpassed the USD for the first time. Since then, the de-dollarization in Chinese international settlements has continued. As of March 2024, over half (52.9%) of Chinese payments were settled in RMB while 42.8% were settled in USD.
In total, other territories hold about $7.4 trillion in U.S. debt. Japan owns the most at $1.1 trillion, followed by China, with $859 billion, and the United Kingdom at $668 billion.
In fact, Japan is by far the largest foreign owner of U.S. treasury securities, with Japanese banks, pension funds, insurance companies etc. holding a total of $1.138 trillion at the end of 2023.
China owns 384,000 acres of American agricultural land. That's a 30% increase just since 2019. And on top of that, they own land near an air force base in North Dakota.
The public owes 74 percent of the current federal debt. Intragovernmental debt accounts for 26 percent or $5.9 trillion. The public includes foreign investors and foreign governments. These two groups account for 30 percent of the debt.
The U.S. goods and services trade deficit with China was $367.4 billion in 2022. U.S. goods exports to China in 2022 were $154.0 billion, up 1.7 percent ($2.6 billion) from 2021 and up 39 percent from 2012.
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