Will China cut US treasury holdings as a countermeasure?



China is a "responsible investor" and respects international capital market rules, and aims to keep its three trillion US dollar forex reserves secure, liquid and moderately profitable, Vice Finance Minister Zhu Guangyao said Wednesday.

Zhu reiterated the stance at a press conference when asked whether China will reduce its US government debt holdings as a countermeasure against proposed additional tariffs by the United States on Chinese exports.

In response to the Trump administration’s plan for 25 percent duties on 50 billion US dollars worth of Chinese imports, China hit back with its own list of similar duties on key American imports including soybeans, planes, cars, beef and chemicals.

China held around 1.17 trillion US dollars of Treasuries as of the end of January, making it the largest of America’s foreign creditors and the No. 2 overall owner of US government bonds after the Federal Reserve.

Any move by China to chop its Treasury portfolio could inflict significant harm on US finances and global investors, driving bond yields higher and making it more costly to finance the federal government.

Therefore the market has been cautiously watching China's decision on this.

"China manages its foreign exchange reserves via market operations in accordance with market rules, specific market principles and the principle of diversified investment," he said, citing remarks made by Chinese Premier Li Keqiang on forex reserves management last month.

China’s foreign exchange reserves, the world’s largest, stood at about 3.13 trillion US dollars at the end of February, with roughly a third of it held in Treasuries.