China sells the most US assets in 4 years, dumping $21 billion of US stock and Treasury bonds (2024)
Phil Rosen
·2 min read
Chinese investors sold $21.2 billion in US equities and Treasuries, the US Treasury said Wednesday.
Chinese investors sold an all-time record $5.1 billion of US stocks that month.
The onshore yuan had weakened against the dollar to its lowest point since November in August.
Chinese investors offloaded $21.2 billion of US assets in the month of August, the most in four years, according to US Department of the Treasury data cited by Bloomberg.
The dumping of US securities comes as the onshore yuan weakened in August to its lowest point since November, fueling speculation Beijing is looking for ways to prop up its currency.
Most of the $21.2 billion in sales were in US Treasury bonds and stocks, and China funds also slashed agency debt holdings, the report said. Chinese investors dumped roughly $5.1 billion of US stocks in August, the most on record.
According to Bloomberg, the pace of US asset sales by investors in China led some on Wall Street to theorize that officials in Beijing were looking for way to further prop up the weakening yuan, selling US bonds to increase their store of dollars that can be used to intervene to boost the currency.
The US bond market, meanwhile, has seen a strong sell-off over recent weeks from investors around the globe. The US 10-year Treasury yield is hovering near 5%, its highest since 2007.
Strategists at Barclays said this week that investors shouldn't expect that to come down anytime soon, except in the event of some financial shock or a recession.
"The hurdle for a [bond] rally is still high," the strategists wrote in a note Wednesday. "Despite data continuing to show a resilient economy, the consensus still expects it to slow very sharply over the coming quarters. Repeated misses beg the question whether the consensus has been overly confident about monetary policy being too tight. We argue that policy is barely tight and risks are skewed towards continued upside surprises."
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.
If China (or any other nation that has a trade surplus with the U.S.) stops buying U.S. Treasuries or even starts dumping its U.S. forex reserves, its trade surplus would become a trade deficit—something which no export-oriented economy would want, as they would be worse off as a result.
Japan remains the largest non-U.S. holder of U.S. government debt. China's holdings of Treasuries rose to $816.3 billion, up $34.3 billion from $782 billion held in November. China's load of Treasuries rose for a second straight month. Before that, China's Treasury holdings had declined for seven straight months.
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).
Who does the United States owe the most debt to? As of July 2020, Japan overtook China and became the largest foreign debt collector for the U.S. The United States currently owes Japan about $1.2 trillion according to the U.S. Treasury report.
The United States pays interest on approximately $850 billion in debt held by the People's Republic of China. China, however, is currently in default on its sovereign debt held by American bondholders.
Debt as a share of GDP has risen to about the same level as in the United States, while in dollar terms China's total debt ($47.5 trillion) is still markedly below that of the United States (close to $70 trillion). As for non-financial corporate debt, China's 28 percent share is the largest in the world.
[2] A report by the credit rating agency S&P Global in 2022 estimated that 79 per cent of corporate debt in China was owed by SOEs (the IMF does not break down the proportion of debt owed by SOEs).
The United States supported China's entrance into the World Trade Organization at the turn of the millennium, which led to an export boom of Chinese goods into the U.S. China ended up parking much of its sales in U.S. Treasurys, CNN reported, because of their perceived safety as an investment.
China has been divesting itself of U.S. debt for several years. The country's Treasury holdings have fallen to their current level from around $1.1 trillion in 2021. Chinese investment in U.S. debt hit a 14-year low in October.
More importantly, China's footprint in the U.S. bond market is a fraction of what it once was. China owns less than 3% of all outstanding Treasuries, the smallest share in 22 years, and again substantially down from the record 14% in 2011. Granted, China also likely holds Treasuries via other countries like Belgium.
If a bond is held past its maturity, the federal government remains responsible for the debt. However, savings bonds that are held past their maturity date do not continue to earn interest and may actually lose value due to inflation.
These are U.S. government bonds that offer a unique combination of safety and steady income. But while they are lauded for their security and reliability, potential drawbacks such as interest rate risk, low returns and inflation risk must be carefully considered.
How did USA owe China so much money? The U.S. debt to China is approximately $1.059 trillion. That's 27.8 percent of the $3.8 trillion in treasury bills, notes, and bonds held by foreign countries. The rest of the $19.9 trillion national debt is owned by either the American people or by the U.S. government itself.
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