Overinterpreting China's U.S. Debt Holdings Not Advisable-Guan Tao

The argument that China is accelerating the liquidation of its holdings of U.S. debt is misleading, with sales not matching the speed implied by some press reports, wrote Guan Tao, a former FX official and now global chief economist of BOC International, in a blog post. China’s holdings of U.S. debt have decreased by USD88 billion in the first five months of 2022, with net sales of mid-to-long-term debt only accounting for 24% of the reduction. The remaining 76% of the shrinkage can be attributed to some non-trading factors including negative valuation effect and the failure to roll over holdings after maturity. The remaining maturity of U.S. debt held by China is relatively short, with valuations of such paper greatly impacted by the rapid rise in short-term interest rates, said Guan, adding that the yields of 2-year, 5-year and 10-year U.S. Treasury bonds rose by 180bp, 155bp and 130bp, respectively, in the Jan-May period.