China trims US Treasury debt for five months
Published: Dec 16, 2020 11:47 AM

Photo taken on March 3, 2020 shows US dollar banknotes in Washington D.C., the United States.(Xinhua/Liu Jie)

China cut its US government debt holdings in October, continuing a downward trend over five consecutive months amid deteriorating relations between the world's top two economies. 

Chinese government holdings of US Treasury debt stood at $1.05 trillion in October, down $7.7 billion from the previous month, hitting a four-year low, surpassing the lowest set in January 2017 according to statistics from the US Treasury Department on Tuesday.

As of October, China remained the second-largest foreign holder of US government debt, while Japan remained atop the rankings with its US debt holdings reaching $1.27 trillion in October down $6.7 billion from the previous month.

The trend in China lowering exposure to US Treasury debt indicates China is adjusting the structure of foreign exchange reserves to reduce risk amid deteriorating China-US relations, Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times on Wednesday.

"The risk of holding US debt has increased after the US launched its overall suppression of China, through economic sanctions, a technology-focused crackdown, and military coercion, aimed at blocking China's development," Dong said. "From the perspective of preventing repayment risk and possible sanction on China, it is necessary to reduce assets held in the US."

The reduction was also linked to the declining yield of US treasure, Dong explained.

"The yield of US Treasury bonds continues to fall and is at its lowest profit at the moment. From the market perspective it is inevitable to reduce holdings, and other countries are also reducing holdings," Dong said.

Total foreign holdings of US Treasury debt fell by $2.6 billion to $7.07 trillion in October, down for the third consecutive month.

It is likely that China will continue to cut its holding of US debt while holding more foreign exchange in euro and Japanese Yen to reduce risks and solve the problem of the excessive proportion of US dollars in its foreign exchange reserves, Dong added.