China has reduced investment in US government bonds (treasuries) to a record low in more than 12 years.

This is evidenced by the latest calculations of the US Department of the Treasury.

According to the agency, from January to November 2022, the volume of Chinese investment in United States Treasury securities decreased by almost $199 billion - from $1.068 trillion to $870 billion. The achieved value was the lowest since June 2010.

Let us clarify that Treasury Treasuries are debt obligations guaranteed by the US government.

Different states buy these securities at a certain cost and subsequently receive a stable income from them.

In other words, government bondholders are lending their money to the economy of the United States.

Today, about a quarter of the total US debt ($31.4 trillion) - just over 23% - is accounted for by treasuries.

In addition to China, the main US creditors at the moment are Japan (the country holds $1.08 trillion in treasuries), Great Britain ($646 billion), Belgium ($333 billion) and Luxembourg ($313 billion).

It is noteworthy that back in 2018, China was the largest holder of US government debt, but already in 2019 it lost this place to Japan.

Experts largely explain this by the aggravation of relations between Beijing and Washington.

“In general, several factors influenced the sale of US government bonds by China.

First, we saw how the confrontation between China and the United States intensified in the form of trade and technological wars, and later, tensions grew over the situation around Taiwan.

The fight against inflation in the United States in the form of raising interest rates also played a role, ”Vladislav Antonov, financial analyst at BitRiver, told RT.

Loss of profit

In 2021, amid the effects of the COVID-19 pandemic, inflation began to rise steadily in the United States.

Then quarantine restrictions led to interruptions in the supply of a number of products, which eventually turned into a rise in prices.

At the same time, to support the economy, the Federal Reserve System (FRS) of the States printed a significant amount of money, which was not adequately backed by goods.

The situation worsened in 2022 after Washington imposed sanctions against Moscow.

In particular, the ban on the supply of energy raw materials from Russia led to a shortage of fuel in the United States and, as a result, a sharp rise in the cost of fuel, as well as a number of other goods.

Against this background, already in the middle of the year, inflation in the United States rose to 9.1% for the first time in more than 40 years.

In an attempt to curb record price increases, the Fed was forced to sharply tighten its monetary policy.

So, in 2022, the American regulator raised its interest rate seven times (from 0-0.25% to 4.25-4.5%) and brought it to the highest level in the last 15 years.

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Traditionally, tightening monetary policy is considered one of the main tools in the fight against inflation.

Thus, as a result of the increase in rates, the cost of loans for citizens and businesses is growing, economic activity is weakening, which puts pressure on prices.

At the same time, the actions of the Fed always lead to an increase in the yield of treasuries, but the value of securities in this case begins to decline.

“Judging by the dynamics of the volume of investments, the current sales of US government bonds by China are directly related to the policy of the Fed.

In 2022, against the background of higher rates, the yield of securities grew and, accordingly, their value decreased.

In conditions when a further reduction in the price of treasuries was expected, Beijing decided to get rid of some of the positions it held, ”Roman Lukyanchikov, analyst at Freedom Finance Global, explained in an interview with RT.

alarm signal

In addition, China's systematic refusal to invest in US public debt may be associated with the desire of the Asian republic to secure part of its money.

The reason for this decision was the tough sanctions of the West against Russia, says Yevgeny Mironyuk, an expert on the stock market at BCS World of Investments.

Recall that in 2022, after the start of a special military operation in Ukraine, Western states imposed more than 10,000 various economic restrictions against Moscow.

Restrictions, in particular, affected the energy sector, the banking industry, aviation, trade and gold and foreign exchange reserves (GFR) of the Russian Federation.

Russia managed to partially prepare for such a development of events and in less than five years almost completely withdrew its money from the American public debt.

So, if at the end of 2017 Moscow held more than $102 billion in treasuries, then at the time of the introduction of sanctions in 2022, this figure was only about $2 billion.

Nevertheless, Western countries still managed to freeze about half of the Russian gold reserves for almost $300 billion, which were placed in countries other than the United States.

This, in turn, became an alarming signal for the PRC, Yevgeny Mironyuk noted.

“The decision of the People's Bank of China to reduce investments in treasuries may be due to the growing demand for alternative currencies in light of the risks of the dollar.

Using the example of Russia, central banks in a number of countries see that, under certain circumstances, the dollar and the euro can become toxic currencies, ”the source explained to RT.

According to Roman Lukyanchikov, for a long time in China there has been a trend towards a decrease in the share of the dollar in the country's reserves.

According to the expert, in mid-2022, Beijing kept about 56% of its reserves in US currency.

At the same time, back in 1995, this figure was about 79%, according to a study by S&P Global.

According to Lukyanchikov, China is now beginning to buy gold as an alternative to dollar investments.

“Meanwhile, as a result of the withdrawal of money from treasuries, the US government debt rate increases, its maintenance becomes more costly for the US authorities.

This leads to an increase in the budget deficit in the United States, to cover which the leadership has to resort to the issuance of new money supply.

Accordingly, in the long term, inflationary pressure may increase again in the country,” Lukyanchikov concluded.