China has cut its holdings of US debt to the lowest level in two years amid trade tensions

[Eugene]

Source: CNBC

China has cut its holdings of US debt to the lowest level in two years amid trade tensions

PUBLISHED THU, MAY 16 2019 8:19 AM EDT UPDATED THU, MAY 16 2019 1:27 PM EDT

Jeff Cox

As trade tensions with the U.S. intensified, China sold off its Treasury holdings at the fastest pace in about two years during March.

The largest foreign owner of U.S. debt reduced the level by just shy of $20.5 billion, a slight decrease that brought the total holdings down to $1.12 trillion. But the move represents a continued pattern of declines that comes as the two sides have been unable to hammer out a long-term trade agreement and instead have been engaging in a tit-for-tat tariff fight that has escalated in recent days.

In the 12-month period ended in March, the latest month for which data is available, China’s stockpile of U.S. government notes, bonds and bills fell by $67.2 billion, a 5.6% decline. The total has fallen by some $200 billion since the peak in 2012 and now represents 7% of total U.S. debt outstanding, compared with 12% previously, according to UBS.

The threat of the country either not buying Treasurys or engaging in outright sales has shaken the bond market before. In addition to any punitive action China might take, it is thought to have reduced its holdings in an effort to defend its currency.

More aggressive actions to cut holdings are considered a nuclear option that could further aggravate ongoing trade negotiations.

-snip-

Read more: https://www.cnbc.com/2019/05/16/china-has-cut-its-holdings-of-us-debt-to-the-lowest-level-in-two-years.html

[at140]

1. China needs to cash in US treasuries because

Chinese businesses are hurting with slower growth.

[KT2000]

2. they are also severely limiting

the amount of money the Chinese can take out of their country.