China’s years-long retreat from US treasuries flags bigger risksThe slump in treasuries after China’s latest call to curb its holdings was fleeting, but it put a spotlight on Beijing’s decade-long shift from US debt and rekindled fears about a broader, global retreat.
For China, regulators have grown worried that large holdings of US government debt may expose banks to sharp swings. Officials advised financial institutions to limit purchases and instructed those with high exposure to pare down their positions, Bloomberg reported, citing people familiar with the matter.
China’s record US$1.2 trillion (RM4.71 trillion) trade surplus is driving the buying spree. Instead of bringing the export earnings onshore, companies and banks have increased their purchases of overseas assets to capture higher returns.
Such large exposure to dollar assets would give pause to Chinese policymakers as the US and China have been locked in heightened geopolitical tensions, according to Stephen Jen, co-founder of London-based Eurizon SLJ Capital.
“The whole idea of lending to the government of your primary adversary should no longer be welcomed in Beijing,” he said.
China’s latest warning comes weeks after Trump’s threat of acquiring Greenland rattled markets anew in January.
That month, AkademikerPension, a US$25 billion Danish pension fund, announced it was exiting the US$100 million it had held in US treasuries, while Dutch fund Stichting Pensioenfonds ABP said it had reduced its holdings of treasuries by about €10 billion (RM46.69 billion) to €19 billion in the six months through September.
Outside Europe, India’s holdings have dropped to a five-year low as the nation pushed to support its currency and diversify reserves. Brazil’s long-term treasuries holdings have also declined.
“The broader trend is clear,” said Damien Loh, chief investment officer at Ericsenz Capital in Singapore. “Non-US entities, both sovereign and corporate, are moving to reduce their overweight positions in US assets, particularly treasuries.”
While foreign holdings of treasuries hit a record US$9.4 trillion in November, the share of the total debt is smaller — reflecting that their purchases haven’t kept up with the growth in US government borrowing. Overseas investors now hold about 31% of the total, compared to roughly 50% at the beginning of 2015.
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