China cuts treasury holdings to two-year low amid trade war

China has reduced its holdings of the US Treasury bills in view of the protracted unresolved trade tensions. (Blomberg pic)

WASHINGTON: China cut its US Treasury holdings to the lowest in almost two years as the months-long trade conflict dragged on between the world’s two largest economies.

The nation’s holdings of notes, bills and bonds declined by US$7.5 billion in April to US$1.11 trillion, according to Treasury Department data released on Monday in Washington.

The latest numbers were collected before tensions between Washington and Beijing escalated to a new level in May when trade talks collapsed and President Donald Trump raised tariffs on US$200 billion of Chinese goods and announced more increases to come.

While speculation has been rife that China may run down its vast holdings of US Treasuries in retaliation, the option is often dismissed as improbable – especially given that China would struggle to find another spot to park its cash.

The yuan fell roughly 0.4% against the dollar in April and it’s tumbled more than 2% since May 6, the day after Trump’s tariff threat. The currency’s decline has drawn fresh criticism from Trump, who complained last week that it has nullified some of the punitive effects of the levies. A weaker yuan makes China’s exports more attractive.

Japan remained the second-biggest holder of Treasuries, with US$1.06 trillion in April, down from US$1.08 trillion a month earlier.

Overall, foreign ownership of US debt fell from a record high to US$6.43 trillion, with overseas investors owning US$40.1 billion less than in March.