China’s holdings of US Treasuries fell for a third consecutive month in August as the Asian nation struggles to prevent the yuan from weakening amid trade tensions with the US.
China’s ownership of US bonds, bills and notes was US$1.165 trillion, down from US$1.171 trillion in July, data released by the US Department of the Treasury on Tuesday showed.
Japan, the largest foreign owner of US Treasuries after China, in July decreased its holdings from US$1.036 trillion to US$1.03 trillion. Saudi Arabia boosted its ownership by US$2.7 billion to a record US$169.5 billion.
TARIFF RETALIATION
Beijing’s sale of US Treasuries is sometimes viewed as a response to the trade war, especially after the Chinese ambassador to the US in March signaled that his country could scale back purchases of the debt to retaliate against US tariffs.
US President Donald Trump has since July imposed tariffs on about half of Chinese imports, with Beijing responding in kind with tariffs on numerous US goods.
“Holdings have declined over the past three months and could continue to do so as the ongoing trade war sours the relationship between China and the US, and thus reduces their appetite for Treasuries,” Jefferies LLC economist Thomas Simons wrote in a note after the Treasury Department’s release. “This will be important to keep an eye on going forward.”
YUAN STABILIZATION
However, China might have allowed its foreign-exchange reserves to decline as part of a policy to stabilize the yuan and prevent it from weakening further. The currency has depreciated more than 4 percent against the US dollar in the past year amid signs of an economic slowdown and capital outflows.
Trump has said that Beijing is deliberately weakening its currency to stimulate exports.
Overall foreign holdings of US Treasuries increased US$35.4 billion to US$6.287 trillion in August, with Brazil and Ireland also increasing their ownership.
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