China cuts its US. government debt holdings to 14-year low

By Sergey Manukov

Over the past few months, the Chinese Ministry of Finance has been aggressively selling US government bonds. As a result of this sale, as of the end of June, China had “only” $835 billion left, according to Business Insider. Of course, this is a lot, but not for China. The last time he had so much US national debt was 14 years ago, in 2009. The authors of a research note from Carson Group, who drew attention to these figures, are confident that the sale does not weaken the United States in any way and is another proof of the problems of the Chinese economy, which cannot recover after the lifting of coronavirus restrictions at the end of last year.

Analysts at the Carson Group believe that Beijing is hard at work selling US government debt to support the yuan, which continues to weaken against the US dollar yuan. China has always kept the yuan artificially low against the dollar to boost exports and has done so, explains Carson Group strategist Sonu Varghese, by buying US government bonds. However, Beijing has now come to the conclusion that such a weak yuan as it is now brings the Chinese economy more harm than good. A year and a half ago, at the beginning of 2022, they gave approx. 6.3 yuan, and now - 7.28, i.e. in a year and a half, the Chinese currency weakened by 15.9%.

“The problem is that capital is now trying to move out of China due to weak growth,” explains Varghese. “This is putting pressure on their currency. And the pressure is strong. And of course they don't like it."

There are really enough problems in the Celestial Empire now. Unemployment among youth, for example, for several months exceeded 20%. It is now so high that Beijing has stopped giving data on it. In addition, deflation came to China. Economists have calculated that it now takes $9 to generate $1 GDP growth. Meanwhile, a decade ago, this figure was almost half as low - $ 5.

To top it all off, throughout the past year, Washington has purposefully reduced imports of Chinese goods. The White House decided to gradually replace Chinese goods with goods from other developing economies, such as Vietnam, the Philippines and India.

The current sale of US government bonds, according to Sonu Varghese, is approximately the same as selling dollars and buying yuan.

“This is primarily a sign of economic weakness,” he explains. “In fact, China needs the United States now more than vice versa. The American economy is based on consumption. This dependence means an increase in demand within the country. The Chinese economy is very dependent on investment and exports, and for this they need high demand not so much in the country as abroad.”
This article originally appeared in Russian at expert.ru