Central Theme: The article analyzes whether China’s extensive holdings of US Treasury bonds represent a powerful financial weapon (“nuclear option”) it could realistically deploy against the US, particularly as retaliation in a trade war scenario initiated by tariffs under the Trump administration.
Key Points & Arguments:
- The Trigger & Speculation: A sharp drop in US bond prices (and rise in yields) in April 2025 coincided with escalating US-China tariffs under Trump. This fueled speculation that Beijing was selling Treasuries as retaliation, possibly prompting Trump’s subsequent partial tariff exemptions on electronics. However, immediate confirmation is impossible, as data lags.
- China’s Holdings: China holds the world’s largest foreign reserves (approx. $3.2 trillion). While official direct holdings of US Treasuries have declined from a peak of $1.3T in 2013 to around $760B in Jan 2025 (making Japan the largest official holder), experts believe China holds substantial additional amounts indirectly via custodians in countries like Belgium and Luxembourg, possibly keeping total exposure relatively stable but less visible.
- Diminishing Leverage: Even assuming large hidden holdings (perhaps $1T total), China’s influence is diluted by the massive growth in US debt (marketable debt rising from $13.1T in 2015 to $28.9T in 2024). China’s share (now estimated around 3.4%) is smaller relative to the market’s size and daily trading volumes (~$900B-$1.5T).
- Limited Impact & Countermeasures: Analysts estimate even a large sell-off (e.g., $300B) would only moderately increase yields short-term. The US Federal Reserve would likely intervene by buying bonds (as in 2020) to stabilize the market, though this could complicate inflation control and weaken the dollar. Furthermore, the US could potentially retaliate with severe measures like freezing Chinese assets held by US banks.
- Self-Inflicted Damage: A mass sell-off would significantly harm China. It would devalue its own vast remaining dollar reserves. Selling dollars to repatriate funds would strengthen the Renminbi, hurting Chinese exports already suffering from tariffs – an act described as “autosabotage”. Exchanging dollars for other currencies would be difficult without causing major appreciation in those currencies.
- The Debtor’s Advantage: The situation reflects Keynes’ idea: owing a million means the *bank* has a problem. The US, as the large debtor, holds significant leverage over China, its creditor.
Conclusion:
The article concludes that China’s ability to use its US Treasury holdings as a potent financial weapon is largely overestimated and likely a “dud” (“niewypał”). The potential market impact is limited and likely to be countered, while the risks of US retaliation and severe self-inflicted economic and financial damage make a large-scale sell-off highly improbable and strategically unwise for Beijing. China’s dollar accumulation stems more from managing trade surpluses and its currency value than from acquiring a readily usable weapon.
Source: Potężna broń czy niewypał? Cała prawda o rezerwach walutowych Chin [ANALIZA] – Money.pl
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