The US Treasury reported that China reduced its investments in American debt in March, selling about $19 billion in Treasury bonds. This reduction was recorded in March amid the escalation of the trade conflict between the two countries.
China reduced its investments in US debt amid the tariff conflict
China is ready to cut some of its positions in US debt amid the ongoing trade war. In March, the US Treasury reported that China reduced its investments in US Treasury bonds by $18.9 billion.
China's investments in US debt this month fell to $765.4 billion from $784.3 billion recorded in February, amid concerns about the use of these assets as a weapon in the context of the trade war.
With this reduction, China dropped to third place among the largest holders of US debt, behind the United Kingdom. Japan, another country potentially affected by the tariff war, is the largest holder of US Treasury bonds.
Chinese analysts believe that these steps are part of efforts to reduce risks associated with holding assets related to a country that may default on its debt obligations due to escalating tariff scenarios.
In this sense, Yu Yunding, a former advisor to the Central Bank of China, stated:
China needs to develop a set of countermeasures through scenario planning to protect the security of its overseas assets.
The rating agency Moody's shares these concerns, downgrading the ideal credit rating of US debt from 'AAA' to 'Aa1'. In a statement explaining its motivations, Moody's emphasized that the downgrade 'reflects the growth of government debt over more than a decade and the relationship to interest payments to levels that are significantly higher than those of similarly rated sovereigns.'
In February, at the beginning of the trade war, China behaved differently, increasing its investments in debt by more than $20 billion. This surprised some, as these actions coincided with the first set of unilateral tariffs on imports from the Asian country, which later escalated into an actual embargo, with tariffs rising by more than 100%.