Chart of the Day: China dumps US sovereign papers

China is the second largest holder of US treasuries, behind Japan and to that extent Washington perhaps owes Beijing its generous elbow room to spend at home. But when it comes to domestic economic considerations, China looks towards lightening its foreign load. That is what happened during the past one year when China sold a whopping $94 billion worth of US treasuries, as the chart shows.

Data from the US treasury department put China’s total holdings of US treasuries at $967.8 billion in July, behind Japan’s $1,236.3 billion. There could be multiple reasons behind the consistent sale of US treasuries by Beijing.

To be sure, the Chinese economy has been struggling with its recovery after Covid-19. Recent troubles with the real estate market that threatens to spill over to its financial system has also made authorities cautious. Government stimulus along with easy monetary policy have been the course of action. At the same time, a sharp rise in US treasuries could also mean that China isn’t ready to sit around with a big hit on its foreign exchange investments.

The US and China have been at loggerheads for long now and latest events involving government official visits to contentious places have angered Beijing. But more than diplomatic gestures, both the countries have been trying to one-up each other economically. This brings even their respective central banks and treasuries to the battlefield.

Considering the cold political glances between Washington and Beijing, it is understandable that there is more to this sale than meets the eye. Whatever the reason, China is clearly on the sell side of treasuries and that could be one driver of the surge in bond yields.