1. China Continues to Sell US Treasuries at a Record Pace
2. Significant Decline in China’s Foreign Exchange Reserves
3. Is China a “Currency Manipulator” as Many Claim?
4. The Largest Foreign Holders of US Treasury Debt
5. What to Expect in President Trump’s First 100 Days
China Continues to Sell US Treasuries at a Record Pace
China is selling US Treasuries at a record pace to support its currency, the Chinese yuan (also known as the renminbi), and to stem the flow of money leaving the country. China’s holdings of US Treasuries declined for a sixth straight month in November, as the world’s second largest economy continued to dip into its dollar-denominated reserves to prop- up a weakening yuan.
China’s holdings of US Treasuries declined to $1.049 trillion in November, a drop of about $66 billion, according to data from the US Treasury Department released last week. November’s drop in China’s holdings was the largest since December 2011’s record fall of $102.7 billion.
In continuous selling over the six months through November, China sold $194.66 billion of Treasuries, and over the previous 12 months it sold $215.11 billion. Both figures are records, according to Reuters.
The People’s Bank of China or “PBOC” (the central bank) is intervening in this particular case by selling US Treasuries and buying yuan in an effort to mitigate the downward pressure on their currency. In other words, the PBOC is trying to avoid further weakness in the yuan.
They are very concerned that unless the yuan is stable, there will be a self-perpetuating acceleration of capital outflows, thus weakening the currency further. No one knows exactly how much or how quickly money is leaving China, but anecdotes and financial reports suggest the outflows are significant.
Significant Decline in China’s Foreign Exchange Reserves
The continued selling in Treasuries coincides with China’s declining foreign exchange reserves, which fell in December to the lowest since February 2011 at $3.011 trillion. China’s foreign exchange reserves have shrunk by over one-fourth since the end of 2013. Since that time, over $1 trillion in capital has moved out of China according to the New York Times.
With a smaller pot of reserves, Chinese leaders have less room to maneuver should the economy undergo a sudden shock. The reserves decline also weakens China’s control over the value of the yuan. The drop in reserves could also hurt China’s efforts to raise its global profile, as it doesn’t have as much money to pump into major projects in developing countries.
The dwindling reserves are one of the many factors shaking global investor confidence because of the impact the slide could have on China’s financial system. A number of investors are now betting that China may have to let its currency depreciate even more, rather than dip further into its reserves.