China loses 2nd largest holder of US Treasury titles

The increase in British reserves reflects the role of London as an international financial center and not direct economic growth

For the first time since the beginning of the century, the Chinese reserves of US Treasury titles have been below those of the United Kingdom, marking a significant change in the management of international reserves by Beijing. Data released on Friday (16) show that China had $ 765 billion in titles at the end of March, against US $ 784 billion in the previous month. Meanwhile, the UK increased its reserves by almost $ 30 billion, reaching $ 779 billion.

Also read: United Kingdom surpasses China and leads US titles

As a result, the United Kingdom assumes the position of the second largest foreign holder of US Treasury titles, behind only Japan. This is the first time since October 2000 that British surpass the Chinese, reinforcing the perception that China is gradually reducing its exposure to US assets.

“China has been selling slowly, but constant; this is a warning to the US,” said Alicia García-Herrero, chief economist for Natixis Asia Pacific. “The warning has been there for years, not suddenly – the US should have acted much earlier.”

The numbers arrive at a delicate time for the US, after Moody’s followed the Fitch and S&P by removing the maximum classification (triple A) from the American economy, citing concerns about increasing debt and deficit.

Since 2011, when its US Treasury titles reservations have reached a $ 1.3 trillion peak, China has been reducing its participation, choosing to diversify its assets into government and gold bonds. Part of the fall in reserves can also be attributed to market fluctuations.

Experts believe Beijing also maintains a growing portion of their American assets through outsourced custodians such as Euroclear (Belgium) and Clearstream (Luxembourg), which makes the exact measurement of their reserves difficult. While Luxembourg reserves remained stable in March, Belgium’s were $ 7.4 billion from February.

The large volume of Treasury titles in possession of China is the result of decades of commercial surplus with the US-something that former President Donald Trump has tried to reduce. However, US officials also see with concern the sale of securities by foreigners, as this presses interest and makes refinancing of public debt more expensive.

In March, the proportion of short -term titles in Chinese reserves – considered more liquid and easy to sell in crises – has reached the highest level since 2009.

“Based on visible data, there is no doubt that China has shortened the salary of its American wallet,” Said Brad Setser, expert at Council on Foreign Relations and former US Treasury employee.

The increase in UK reserves does not necessarily reflect a British strategy, but the role of London as the global financial center. Banks, insurers and hedge backgrounds based on Europe use US Treasury titles for arbitration operations, such as the so -called “basis trades” (negotiations that explore price differences between markets).

“The UK number probably reflects an increase in securities detained by global banks, the availability of custody services in London and, potentially, part of hedge background activity”, explained Setser.

Trade war can accelerate changes

Data released only captures movements by the end of March and do not reflect possible adjustments made by China after the climb of Trump’s trade war, which began in the call “Liberation Day”.

“It is possible that China has made significant changes in its reserve management in the last six weeks, which will only be clear over time,” Disse Setser.

The gradual reduction of Chinese reserves in US Treasury titles signals a dollar -dependent strategy, while Beijing seeks to strengthen Yuan and diversify its applications amid geopolitical tensions. The movement also puts pressure on the US, which depend on the confidence of foreign investors to finance their budget deficit.

With information from Financial Times*