China will not use its Treasury holdings as a weapon against the US - expert
18.07.2019, 08:00

China will not use its Treasury holdings as a weapon against the US - expert

China has other “weapons” in its trade battle with the United States — and selling off its U.S. Treasury holdings will not be one of them, said Richard McGregor, senior fellow at think tank Lowy Institute.

As trade tensions between the two countries escalated in March, Beijing cut down its U.S. debt holdings at the fastest pace in about two years.

The move fueled concerns that China, the largest foreign owner of U.S. Treasurys, could employ the so-called “nuclear option” — the ability to sell off its Treasury bonds and trigger a surge in interest rates that would damage the American economy.

“Weaponizing” U.S. Treasury holdings has always been a “non-starter” for Beijing, said McGregor. “The Chinese current account deficit is now under 1% of GDP,” he explained. “If China were to do anything to the U.S. dollar, that would obviously hurt Chinese holdings of the U.S. dollar. And I also don’t think they want to see the disruptive effect that will have.”

McGregor said China has other options in the trade battle. “China can manage its economy, manage its entry to its economy,” he said. Beijing can manage foreign access to the Chinese economy, and decide whether to boost the presence of foreign firms or deny them further access.

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