Why is China reducing holdings of US Treasury bonds?

  • China has huge foreign currency reserves ($3.9tn) due to current account surplus (exports > imports) and over the last decade approx 30% of it has been held in US Treasury bonds.
  • China demand for US Treasury bonds keeps US interest rates low and hence helps US growth (low interest rates are good for growth).
  • Due to narrowing China current account surplus + geopolitical reasons, China's strategy is now to buy fewer US bonds and instead spend on supporting domestic demand and developing overseas markets.

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