China continues to sell US government bonds: lowest level since 2009

China again sold American government bonds in May, causing China’s position to fall to $ 756.3 billion. This is the lowest level since March 2009 and is the third month in a row in which Chinese exposure decreases.

Persistent sale points to structural shift

According to figures from the US Department of Finance, China sold nearly $ 1 billion to US national debt in May. In the months before, large quantities were also reduced: in March it was about $ 19 billion, followed by $ 8.2 billion in April. Because of these decreases, China has since dropped to third place among the largest foreign holders of American government bonds, after Japan and the United Kingdom.

The continuous reduction is seen by analysts as a possible indication of a policy change. The tense trade relationship with the United States plays a role in this. The American trade measures, introduced under President Donald Trump, have affected the confidence of foreign parties in American debts. China is one of the countries that are directly affected by these measures.

Diversification as a motive for sale

Although China still owns $ 756.3 billion in US government bonds, the recent sales are in line with advice from Chinese policy advisers to be less dependent on American debt. Instead, more should be invested in alternative, more stable assets such as gold and other metals.

The Chinese reduction is part of a wider global trend. Internationally, the share of foreign parties in US government bonds is declining. Whereas in 2008 57 percent of the outstanding bonds were in foreign hands, that share has since fallen to 32 percent. This trend can indicate a growing distrust of the American budget policy and the rising national debt.

This seems to reflect a broader reconsideration of risks in the international bond market. The developments can have consequences for both American capital markets and the worldwide financial balance.