China has steadily pared down its holdings of U.S. sovereign notes, bills and bonds for the last several months. It held $1.123 trillion in U.S. Treasury debt in December of last year, down from $1.184 trillion in the same month of 2017, according to U.S. Treasury Department data.
America’s second-largest debt buyer is Japan, which has also been cutting its holdings: It’s currently down to $1.042 trillion in Treasurys, from $1.061 trillion in the same time frame.
Still, the threat to U.S. debt may be overblown, some argue. China dumping its U.S. debt holdings would likely backfire on itself, as it would have to sell some of its Treasury holdings at a loss: That would result in a loss of capital and simultaneously weakening the U.S. dollar, which would in turn make American exports more attractive. And other countries could also step in to buy those bonds, keeping interest rates stable.
Over the last several years, China has bought scores of treasury bonds partly because it has the U.S. dollars it needs to spend. Just like any investor, China wants to park some of the greenbacks made from exports to the United States into safe investments, and there’s nothing perceived to be safer than U.S. bonds.
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