SCMP "China May Reduce U.S. Treasury Holdings"

[Asia Economy Beijing=Special Correspondent Park Sun-mi] Amid escalating tensions between the United States and China due to the novel coronavirus infection (COVID-19), U.S. Treasury bonds have emerged as a potential 'retaliation card' between the two countries.

On the 7th, Hong Kong's South China Morning Post (SCMP) cited expert analysis, reporting that due to the rekindled U.S.-China trade tensions and disputes over the origin of COVID-19, China may significantly reduce its holdings of U.S. Treasury bonds within the next few months.

Some U.S. media have already reported that White House officials discussed invalidating the repayment obligations of U.S. Treasury bonds held by China to hold China accountable for the outbreak of COVID-19 and offset the costs incurred. Although Larry Kudlow, Chairman of the White House National Economic Council (NEC) and economic advisor to President Donald Trump, dismissed the 'possibility of China refusing to repay U.S. Treasury bonds it holds,' the fact that U.S. officials have engaged in such discussions provides China with justification to reduce its U.S. Treasury holdings.

SCMP conveyed that experts view the 'possibility of China refusing to repay U.S. Treasury bonds it holds' as a card that is realistically difficult to implement, but many believe China may take preemptive measures to reduce its U.S. Treasury holdings to mitigate risks. Furthermore, if China uses this as a pretext to sell off a large volume of U.S. Treasury bonds, the United States, which would need to increase new bond issuance to fund its COVID-19 economic response, could face difficulties. It also explained that this could trigger a sharp drop in U.S. bond prices and a rise in interest rates, potentially leading to a collapse of the dollar and financial markets.

However, experts note that if China sells off a large amount of U.S. Treasury bonds all at once, China would also incur losses. Therefore, it is possible that China might initially reduce its overall holdings by not extending maturing bonds and halting additional purchases.

Iris Fang, Senior Economist in charge of China at ING Bank, said, "China wants to quickly reduce its U.S. Treasury holdings," adding, "Over the past decade, there have been considerable calls within China to reduce U.S. Treasury holdings." She explained, "Within the next few months, China may stop purchasing U.S. bonds to send a clear signal to the U.S., and if such a decision is made, selling U.S. Treasury bonds could become a reality later."

China's reduction of U.S. Treasury holdings was often mentioned in financial markets as a 'retaliation card' during the intensified conflict phase of the trade war with the United States until last year. Currently, China is the second-largest holder of U.S. Treasury bonds after Japan, with holdings amounting to $1.092 trillion as of the end of February. China has been gradually reducing its U.S. Treasury holdings recently, and after losing the top spot to Japan in June last year, it has remained in second place.

This content was produced with the assistance of AI translation services.